Kauai Real Estate > Vacation Homes

Vacation Homes Hit New Record in 2005

By Blanche Evans

One-third of the homes sold in 2004 were vacation, second homes or investments sold to non-occupying owners. In 2005, the numbers were even more startling. Just when it seemed there couldn't be a bigger market for vacation homes, the National Association of Realtors® announces a record year for the sale of second homes. Vacation- and investment-home sales both set records in 2005, with the combined total of second home sales accounting for four out of 10 residential transactions, according to NAR.

The annual report, based on two surveys, shows that 27.7% of all homes purchased in 2005 were for investment and another 12.2% were vacation homes. All together, there were 3.34 million second-home sales in 2005, up 16.0% from an upwardly revised total of 2.88 million in 2004. The market share of second homes rose from 36.0% of transactions in 2004 to 39.9% in 2005.

Vacation-home sales increased 16.9% last year to a record 1.02 million from a downwardly revised 872,000 in 2004, while investment-home sales rose 15.7% to a record 2.32 million in 2005 from an upwardly revised 2.00 million in 2004.

David Lereah, NAR's chief economist, said all the factors at play in the second home market were favorable in 2005. "To begin with, the baby boom generation is driving second home sales -- they're at the optimum point in life when people become interested in second homes, they're at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments," Lereah said.

Lereah said there are significant motivational differences between vacation-home buyers and investment buyers. "Vacation-home buyers are making lifestyle choices and purchasing primarily for their own enjoyment," he said. "Investment-home buyers are seeking rental income and portfolio diversification, although vacation-home buyers also mentioned diversification."

In listing the reasons for purchase, 41% of vacation-home buyers said they will use them for vacations, 31% will use as a family retreat and 28% will use the properties to diversify their investments.

The median price of a vacation home in 2005 was $204,100, up 7.4% from $190,000 in 2004. The typical investment property cost $183,500 last year, up 24.0% from $148,000 in 2004.

NAR President Thomas M. Stevens from Vienna, Va., said not all second homes sales are necessarily a "second" home, particularly for investment buyers. "Some of these purchases may be a third, fourth or fifth investment property, showing that housing is a good investment," said Stevens, senior vice president of NRT Inc. "The lion's share of investment homes is actually the primary residence of a renter. Most investment owners are seasoned buyers who understand the long-term benefits of ownership, but not everybody is cut out to be a landlord." Four percent of all homeowners hold three or more properties; 11% own two properties.

Typical vacation-home buyers in 2005 were 52 years old, earned $82,800, and purchased a property that was a median of 197 miles from their primary residence; however, 47% of vacation homes were less than 100 miles and 43% were 500 miles or more. Investment-home buyers last year had a median age of 49, an income of $81,400, and bought a home that was close by -- a median of 15 miles from their primary residence.

More than three-fourths of vacation-home buyers have no interest in renting their property, and 21% said it would become a primary residence on retirement compared with only 2% of investment buyers. Fourteen percent of investment buyers and 6% of vacation-home buyers purchased a property that their son or daughter can occupy while in school.

In describing characteristics that vacation home buyers value about their property, 40% said close to an ocean, river or lake; 34% close to family members; 27% close to preferred recreational activities; 27% close to their primary residence; 26% close to mountains; 24% close to a preferred vacation area; and 17% close to a job or school.