Homebuyers Taking A Hiatus From Vacation Properties, NAR Says

The tide has turned on vacation-home purchases in the U.S. As recently as three years ago more than 1 in 5 of the homes sold in America were vacation properties, but in 2016 it was about 1 in 8, with their total dropping by 21% in a year, says a recent National Association of Realtors survey.

The number of investment properties purchased, meanwhile, was 4.5% greater last year than in 2015, and at their highest number since 2010. In a standout year for home sales, though, that was just enough to keep the share of investment properties changing hands at 19%, where it’s been since 2014.

Sales of owner-occupied residences made up the remaining 70% of 2016’s home purchases — the largest percentage since 2010.

The reasons for the decline in vacation-home sales? Fewer available homes and higher prices for those that remain, says Lawrence Yun, NAR chief economist.

“In several markets in the South and West — the two most popular destinations for vacation buyers — home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale,” Yun said in a news release for the 2017 NAR Investment Vacation Home Buyer’s Survey. “With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.

“The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales,” he added, “as some affluent households with money in stocks likely refrained from buying or delayed plans until after the election.”

That delay might have cost them. Prices for investment properties rose by 8%, year over year, while the cost to buy a vacation property spiked as well, but only by about half that — 4.2%. In comparing the prices of vacation and investment properties, however, the getaways averaged $200,000, which was significantly higher than the $155,000 paid for the investments.

“Sales to individual investors reached their highest level since 2012 (1.20 million) as investors took advantage of record-low mortgage rates and recognized the sizable demand for renting in their market as renters struggle to become homeowners,” Yun said in the release. “The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase.”

Even among buyers of vacation properties, though, the survey found that generating returns was a consideration: About 8% of them expected to see some income from them as part-time rentals, and 10% said they were motivated by “potential for price appreciation.”

And among those purchasing properties primarily as investments, 9% of survey respondents still expected to use them as a retreat for themselves or their families.

A significant share of both kinds of buyers also said they had or would attempt to rent their properties in the short term, with 29% of those who purchased vacation homes saying they did rent them for 30 days or less at a time, or will try to. Of the 44% of investors who said they had or would rent out their properties, the aim was to lease them year-round, in both the short and long term.

Some of those who bought homes as primary residences also expressed aspirations to become landlords, at least part-time — with 11% saying they intended to rent out their dwellings, with the median expected duration being three days.

Other findings of the NAR survey:

  • Median square footage for vacation and investment properties were roughly the same. A vacation home averaged 1,460 square feet; it was 1,500 for an investment property. That of a primary residence was 1,900.
  • The vacation-minded were more likely than either investors or buyers of primary residences to purchase in rural and resort areas, and in small towns. About 1 in 4 bought in resort locations, the same ratio as in rural communities. About 1 in 5 chose getaways in small towns.
  • Beach areas were the top choice among vacation locales, with 36% of buyers in that category selecting getaways there. Lakefronts drew 21% of them, and homes “in the country” attracted 20%.
  • Subdivisions or suburbs were favored by 34% of investors, with 23% opting for urban environments.
  • Most of the properties in all three categories were financed with mortgages, though in the case of investments, it was 64%, compared with 72% for vacation homes and 87% for primary residences.

The NAR survey was drawn from a sample of 2,099 respondents, all of whom had purchased a type of residential property in 2016. Buyers of primary residences made up 70% of them, while 12% purchased vacation homes, and 19% had bought dwellings as investments.


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