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Second-Home Sales Accounted for One-Third of Transactions in 2007

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RISMEDIA, April 1, 2008-The combined total of vacation- and investment-home sales declined with the overall market in 2007, but still accounted for 33% of all existing- and new-home sales, which is close to historic norms, according to the National Association of Realtors®.

The market share of homes purchased for investment last year was 21%, down from 22% in 2006, while another 12% were vacation homes, compared with a 14% market share in 2006. The total share of second homes declined from 36% of transactions in 2006.

NAR’s annual Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.6% to 740,000 in 2007 from a record 1.07 million in 2006, while investment-home sales fell 18.1% to 1.35 million last year from 1.65 million in 2006. At the same time, primary residence sales declined 10.0% to 4.34 million in 2007 from 4.82 million in 2006.

Lawrence Yun, NAR chief economist, said the findings suggest different cycles for each of the sectors over the past two years.

“Investment-home sales declined sharply in 2006 as speculators disappeared, leaving the market to serious buyers, with the pattern continuing in 2007,” he said. “Vacation-home sales rose to a new record in 2006 because there was a pent-up demand from buyers who couldn’t find a property as a result of tight supplies in preceding years.”

The overall sales decline in 2007 resulted from a combination of factors.

“Certainly, second homes are discretionary purchases and there is a natural tendency to pull back from big-ticket items in periods of uncertainty,” Yun said. “The other factor is the disruption in the mortgage market, with a significant tightening of credit during the second half of 2007. Some buyers simply adopted a wait-and-see attitude.”

Yun said lifestyle factors and strong demographics remain positive for the vacation home market. “Investment considerations are secondary for vacation-home buyers, so there is some dormant underlying demand,” he said. “A peak of population is moving through the prime years for buying recreational property. It is welcoming to see investment sales returning to pre-boom sales activity.”

The median price of a vacation home was $195,000 in 2007, down 2.5% from $200,000 in 2006. The typical investment property cost $150,000 last year, unchanged from 2006.

Fifty-nine percent of vacation homes purchased in 2007 were detached single-family homes, 29% condos, 7% townhouses or row houses, and 5% other. In 2006, single family homes accounted for 67% of vacation-home sales, while condos were 21%.

There were no significant changes in investment housing types. Sixty-one percent of investment homes purchased in 2007 were detached single-family homes, 20% condos, 11% townhouses or row houses, and 8% other. Twenty-eight percent of vacation-home buyers paid cash for their property, as did 35% of investment buyers.

Sixty-five percent of vacation home buyers and 71% of investment home buyers purchased existing homes, while the remainder purchased new homes.

The typical vacation-home buyer in 2007 was 46 years old, had a median household income of $99,100, and purchased a property that was a median of 287 miles from their primary residence.

In listing the reasons for purchasing a vacation home, 84% of buyers wanted to use the home for vacation or as a family retreat; 30% to use as a primary residence in the future; 26% to diversify investments; 25% to rent to others; 16% for the tax benefits; 14% for use by a family member, friend or relative; and 6% because they had extra money to spend.

Last year, 19% of vacation homes were purchased in the Northeast, 16% in the Midwest, 41% in the South and 24% in the West. In terms of location, 30% of vacation homes were purchased in rural areas, 20% in resorts, 20% in a suburb and 14% in an urban area or central city.

Investment-home buyers last year had a median age of 42, earned an income of $92,900, and bought a home that was relatively close to their primary residence – a median distance of 27 miles.

When asked about the most important reasons for their purchase of an investment home, 51% said to provide rental income; 39% to diversify investments; 21% to use for vacations or as a family retreat; 16% for use by a family member, friend or relative; 11% for tax benefits; 10% to use as a primary residence in the future; and 4% because they had extra money to spend.

Twenty-three percent of investment properties purchased in 2007 were in the Northeast, 19% in the Midwest, 38% in the South and 21% in the West.

Thirty-nine percent of investment homes were purchased in a suburb and another 20% in an urban or central city area, 21% in a small town, 15% in a rural area, and 5% in a resort area.

Vacation-home buyers plan to keep their property for a median of 10 years; 38% plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of four years, with 29% planning to keep for six years or more. However, 10% of investment buyers plan to sell in one year or less.

Eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 59% of primary residence buyers. Forty-four percent of vacation-home buyers and 57% of investment buyers said they were likely to purchase another property within two years.

NAR’s 2007 Investment and Vacation Home Buyers Survey, conducted in March 2008, includes answers from 1,965 usable responses. The survey controlled for age and income, based on information from the larger 2007 National Association of Realtors® Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.

For more information, visit www.realtor.org/newresearch.

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