Second Home Market - NAR Cites Positive Indicators

NAR’s Research Department has released its analysis of the state of the vacation and investment property market, based on a 2008 survey.

A significant majority of vacation home buyers – 89 percent -- purchased a property for their personal use, while 25 percent also considered the rental potential. Twenty-six percent purchased a vacation home with the expectation of converting it to their primary residence in the future. Vacation home buyers expect to own their property for a median of 12 years. Slightly fewer than one-third of vacation home buyers paid cash for their property.

Eight-four percent of investment property buyers purchased an existing home, up from 71 percent in 2007. Investors may have been attracted to distressed properties rather than new homes as suggested by the 16 percent of properties that were purchased through the foreclosure process. More than half of investment property buyers indicated that they purchased the home to rent to others and 38 percent considered the property a good investment opportunity over and above any income generation potential. Forty-two percent of investment property buyers paid cash, up from 35 percent in 2007.

As is the case for home buyers in general, second-home purchasers rely on the knowledge and expertise of real estate professionals. The majority of vacation home buyers purchased their home through a real estate professional and just under half of investment property buyers did so as well.

The speculative level of home buying that was evident in many markets mid-decade has subsided. But despite weakening second home purchases in 2008, the long-term demand looks favorable.

There are large numbers of people in the prime years for buying a second home. While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain. Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second home market over the next decade.

It is important to remember that lifestyle considerations are the single most important factor in the vacation home market. Households buy weekend homes or recreational property to use themselves or for a family retreat – investment considerations are secondary for most vacation home buyers with relatively modest interest in renting. As the economy recovers, no doubt many investors will take a second look at the investment property segment of the market while potential vacation home buyers consider purchases when confidence and a more normal flow of credit return to the market.

NAR’s research reports on a variety of topics such as this are available at .