The American desire to own a second home as a vacation home is alive and well!
The National Association of Realtors analysis of U.S. Census Bureau data shows there are approximately 8 million vacation homes in the U.S. Their 2014 Investment and Vacation Home Buyers Survey shows vacation home sales improved substantially in 2013.
NAR Chief Economist Lawrence Yun said favorable conditions are driving second-home sales:
“Growth in the equity markets has greatly benefited high net-worth households, thereby providing the wherewithal and confidence to purchase recreational property,” he said. “However, vacation-home sales are still about one-third below the peak activity seen in 2006.”
Here are the key findings from the report:
- Vacation-Home sales rose 29.7 percent to 717,000 from 553,000 in 2012
- Sales accounted for 13% of all transactions last year, up from 11% in 2012
- The median price was $168,700, compared with $150,000 in 2012, reflecting a greater number of more expensive recreational property sales in 2013
- 42% of vacation homes purchased in 2013 were distressed homes (in foreclosure or short sale)
- The typical vacation-home buyer was 43 years old
- The median household income was $85,600
- Buyers plan to own their recreational property for a median of 6 years
- 33% said they were likely to purchase another vacation home within two years
- 82% of all second-home buyers said it was a good time to buy (compared with 67% of primary residence buyers)
Reasons for Purchasing
Lifestyle factors remain the primary motivation for vacation-home buyers:
- 87% want to use the property for vacations or as a family retreat
- 31% plan to use it as a primary residence in the future
- 28% wanted to diversify their investments or saw a good investment opportunity
- 23% plan to rent to others
- 41% of vacation homes purchased last year were in the South
- 28% in the West
- 18% in the Northeast
- 14% in the Midwest
The vacation homebuyer purchased a property that was a median distance of 180 miles from their primary residence (down from 435 in 2012)
- 46% were within 100 miles
- 34% were more than 500 miles
- 38% of vacation-home buyers paid cash in 2013
- The median down payment was 30%, up from 27% in 2012
Over the last six years, homeownership has lost some of its allure as a financial investment. As homeowners suffered through the housing bust, more and more began to question whether owning a home was truly a good way to build wealth. A study by the Federal Reserve formally answered this question.
Some of the findings revealed in their report:
- The average American family has a net worth of $77,300
- Of that net worth, 61.4% ($47,500) of it is in home equity
- A homeowner’s net worth is over thirty times greater than that of a renter
- The average homeowner has a net worth of $174,500 while the average net worth of a renter is $5,100
The Fed study found that homeownership is still a great way for a family to build wealth in America.
Many sellers are still hesitant about putting their house up for sale. Where are prices headed? Where are interest rates headed? These are all valid questions. However, there are several reasons to sell your home sooner rather than later. Here are three of those reasons.
1. Demand is about to skyrocket
Most people realize that the housing market is hottest from April through June. The most serious buyers are well aware of this and, for that reason, come out in early spring in order to beat the heavy competition. We also have a pent-up demand as many buyers pushed off their home search this winter because of extreme weather. Sellers in markets where seasonal weather is never an issue must realize that buyers relocating to their region will increase dramatically this spring as these purchasers finally decide to escape the freezing temperatures of the winters in the north.
These buyers are ready, willing and able to buy…and are in the market right now!
2. There Is Less Competition – For Now
Housing supply always grows from the spring through the early summer. Also, there has been a growing desire for many homeowners to move as they were unable to sell over the last few years because of a negative equity situation. Homeowners have seen a return to positive equity as prices increased over the last eighteen months. Many of these homes will be coming to the market in the near future.
The choices buyers have will continue to increase over the next few months. Don’t wait until all the other potential sellers in your market put their homes up for sale.
3. There Will Never Be a Better Time to Move-Up
If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by approximately 4% this year and 8% by the end of 2015. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30 year housing expense with an interest rate at about 4.5% right now. Freddie Mac projects rates to be 5.1% by this time next year and 5.7% by the fourth quarter of 2015.
Moving up to a new home will be less expensive this spring than later this year or next year.
If you are a real estate professional and want great information on where prices and interest rates are headed over the next 18 months, we cover both in the March edition of Keeping Current Matters. If you are already one of our 6,000+ members, login in to get the educational resources you need to intelligently discuss the future of values and interest rates with your clients.
We have often talked about the difference between COST and PRICE. As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As either a first time or repeat buyer, you must not be concerned about price but instead about the ‘long term cost’ of the home. Let us explain.
Recently, we reported that a nationwide panel of over one hundred economists, real estate experts and investment & market strategists projected that home values would appreciate by approximately 8% from now to the end of 2015.
Additionally, Freddie Mac’s most recent Economic Commentary & Projections Table predicts that the 30 year fixed mortgage rate will be 5.7% by the end of next year.
What Does This Mean to a Buyer?
Here is a simple demonstration of what impact these projected changes would have on the mortgage payment of a home selling for approximately $250,000 today: