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The Vacation Home Market Stages A Comeback

As the market continues to shift, one industry trend seems to be making continuous waves: vacation homes.

With low prices and mortgage rates still available in most parts of the country, affluent buyers—or those who have always dreamed of a cabin on a lake—are making their move and purchasing second homes in exotic locations to be used as vacation getaways.

According to the National Association of REALTORS (NAR), sales of investment and vacation homes jumped in 2011, with the combined market share rising to the highest level since 2005.

NAR’s 2012 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2011, showed vacation-home sales rose 7% to 502,000.

It’s easy to understand why the vacation home market would be on the rebound; not only is the overall real estate atmosphere brightening, but U.S. travel expenditures are picking up, too. 

In 2011, we saw an 8.8% rise in travel expenditures, and according to the October 2012 Traveler Sentiment Index, traveler sentiment neared pre-recession levels, within 0.7 points of the October 2007 pre-recession high of 91.1.

People are getting away again, and as the economy stabilizes, many are looking for a standing vacation spot. But what does this rebounding market look like, and what does it mean for you as a consumer? 

Let’s take a look at the numbers, according to the 2012 NAR survey:

• In 2011, 42% of vacation-home buyers paid in cash, and 39% purchased distressed properties.

• Vacation-home sales accounted for 11% of all transactions in 2011, up from 10% in 2010.

• The typical vacation-home buyer was 50 years old, with a median household income of $88,600.

• Purchased vacation homes were located a median of 305 miles from the buyer’s primary residence. 35% of vacation homes were within 100 miles, and 37% were more than 500 miles.

• Typical buyers plan to own their recreational property for a median of 10 years.

“There are lots of investors buying rental properties and second homes right now,” says Goran Forss, a broker in Temecula, Calif., whose company has had a consistently strong base of investors over the past several years—approximately one-third of all buyers—and has copious amounts of vacation rentals. In Forss’ market, a myriad of investors keeps the inventory scant. 

Of course the Monterey Peninsula is the king of second homes with a very high percentage of non-owner occupied residences.

Aside from a location that will allow them to enjoy their new home to the fullest, Forss notes that buyers are interested in maximizing their return on investment. ROI was non existent at the height of our market in 2006 but now people can actually purchase a home here on the peninsula and make money renting it out.

NAR’s survey showed that 91% of vacation-home buyers planned to rent their new home out within the next 12 months for at least part of the season. Of this 91%, 40% plan to rent the home between one and eight weeks of the year, possibly to make a little extra money during the time they won’t be using the property.  32% plan to rent their properties between nine and 26 weeks per year, and 27% plan to rent their homes between 27 and 52 weeks per year. Of course those (vacation properties) have become more and more popular for the savvy investor and stay booked year round due to our moderate year round temperatures.

U.S. vacation home seekers aren’t solely staying within the country, either. The trend seems to be percolating worldwide. Shannon P. Murree, a real estate professional in Barrie, Canada, says she has seen an increase in U.S buyers looking for additional properties in her market as confidence in the economy grows. “People are looking at (vacation homes) for their own use, and renting them out weekly during the times they won’t be using them, as well,” says Murree, who notes that she has seen an increase in this trend as of late. 

Again bringing it back to local, Carmel-by-the-Sea for example has a 30 day minimum rental restriction.

When looking for a vacation home, it’s also important to understand that lending is different for non-primary properties. Lenders are stricter with vacation home mortgages than those for traditional homes, so buyers must have immaculate credit—often 720 or greater—and be up-to-date with their primary mortgage. Additionally, many lenders have been giving out “jumbo” mortgages for vacation and investment properties. 

Unfortunately, new mortgage guidelines put out by the Consumer Financial Protection Bureau will go into effect in 2014 and may put an end to these popular loans. 

So what does that mean? NOW is the time to buy that second home!

© Patty Ross  |  KRXA Radio Show #245  |  June 7, 2013