Cecily O'Connor
RedwoodAge.com
Baby boomers are contributing to a record-setting rise in vacation-home sales as they snap up beach and mountain getaways for family retreats.
Vacation-home sales rose 4.7 percent to a record 1.07 million last year from 1.02 million a year earlier, according to the National Association of Realtor's annual vacation-homes study. About 14 percent of all homes purchased last year were vacation homes, up from 12 percent in 2005.
Meanwhile, investment-home purchases tumbledl 28.9 percent to 1.65 million last year from 2.32 million in 2005, and represented 22 percent of all homes purchased, down from a 28 percent the previous year, the NAR said. Such sales are typically popular with boomers who can do a 1031 tax-deferred exchange by rolling over proceeds received from the sale of one property into another.
"We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market. But the rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties to others," David Lereah, NAR's chief economist, said in a news release.
However, at least two California realtors said for now their baby boomer clients remain motivated by investment in a market where interest rates remain relatively low and supply ample.
"We have a really good surge of boomers who are starting to look at their retirement picture and buying (homes) they can vacation-rent, derive income from, and then convert to a retirement property in the future," said Cindy Kennedy, owner Kennedy & Associates in Gualala, Calif., which serves The Sea Ranch, a 10-mile long development of custom-built homes on the coast of Sonoma County. "Boomers are the biggest segment of buyers we've had coming in the last couple years."
About 79 percent of buyers surveyed by NAR said they want to use their second home for vacation; 34 percent to diversify investments; 28 percent as a future primary residence; 25 percent for tax benefits; 22 percent for use by a family member or friend; 21 percent because they had extra money to spend; and 18 percent to rent.
Overall, the typical vacation-home buyer in 2006 was 44 years old, had a median household income of $102,200, and bought property that was, on average, 215 miles from their primary residence, NAR said. Most second-home buyers are married couples.
In terms of location, 29 percent of vacation homes were purchased in rural areas, 24 percent in resorts, 22 percent in a suburb and 10 percent in an urban area, NAR found. One-quarter of vacation homes were purchased in the Northeast, 13 percent in the Midwest, 38 percent in the South and 25 percent in the West. Two-thirds of buyers want to be close to an ocean, river or lake; 39 percent close to recreational or sporting activities; 38 percent close to vacation or resort areas; and 31 percent near mountains.
Price decline
Vacation homes tend to be pricier than investment properties, although price
tags are falling slightly. The median vacation home price in 2006 was $200,000,
down 2 percent from $204,100 in 2005. Meanwhile, the typical investment property
cost $150,000 last year, down 18.3 percent from $183,500 in 2005.
For vacation-home prices to edge down in a record market puzzles some. "It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts," said Mr. Lereah.
"Anecdotally, part of the drop in the median investment price results from investors shifting away from pricier markets like Florida, Nevada and Arizona, and into affordable locations in New Mexico, Idaho, Utah, Georgia, Tennessee and the Carolinas," he added.
Bob Angilella, a realtor in Big Bear Lake, Calif., which is surrounded by the San Bernardino National Forrest, said home prices there are "settling," noting a lakefront property recently sold for $150,000 less than the $1.6 million list price. Lakefront homes in the area are, on average, about $1 million, while the average vacation home is priced between $375,000 and $400,000, Mr. Angilella said.
"We've got six people on my team, and we're pretty busy overall, and I do attribute it to the investor and baby boomer market," he said, noting interest from buyers in the Los Angeles area who want to "smell pine trees," or be near the slopes. About 60 percent of Mr. Angilella's business is investment-property driven, with buyers doing a lot of 1031 exchange sales, he said.
Meanwhile, investment-home buyers tend to be younger than those in the vacation-home market. The typical buyer was 39 with an income of $90,250 who bought a home fairly close to their primary residence, they survey found. The most important reasons for purchasing an investment home included rental income (46 percent); need to diversify investments (43 percent); tax benefits (23 percent); vacations or a family retreat (18 percent); and extra money to spend (15 percent).
Regardless of motivation, the buying activity is likely to continue apace. About 55 percent of vacation-home buyers and 66 percent of investment buyers said they were likely to snap up another property within two years. Said Mr. Lereah: "Second homes are really something of a misnomer because a fair number of respondents buy multiple properties."
