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REALTOR®: Second-home Sales Accounted for One-third of 2007 Transactions

Investments need to be sound, cautious, C.A.R. economist advises.

Wednesday, April 9, 2008

The combined total of vacation- and investment-home sales declined with the overall market in 2007, but still accounted for 33 percent of all existing- and new-home sales, according to the National Association of Realtors®. Last week, a California Association of REALTORS® official told Silicon Valley Realtors opportunities for investors still exist, but investors need to be cautious and knowledgeable about the market.

"Now is not a good time to test the waters," California Association of REALTORS® Deputy Chief Economist Robert Kleinhenz told members of the Silicon Valley Association of REALTORS®, as he presented his economic forecast for 2008.

Kleinhenz said California's market will be bumpy for most part of this year, but he sees sales edging upward. The long-term prospects for the market, particularly in Silicon Valley, are very good, he said, adding now is a good time for serious buyers.

"Find a home that meets your needs and fits your budget," Kleinhenz advised prospective home buyers.

For those interested in investment property, he cautioned, "Opportunities for investors are there, but you have to do your homework."

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

NAR's annual Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.6 percent in 2007 from 2006, while investment-home sales fell 18.1 percent last year from 2006.  At the same time, primary residence sales declined 10 percent in 2007 from 2006.

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," said Lawrence Yun, NAR chief economist. "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 percent from $200,000 in 2006. The typical investment property cost $150,000 last year, unchanged from 2006.

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. Eighty-four percent of vacation-home buyers wanted to use the home for vacation or as a family retreat; 30 percent to use as a primary residence in the future; 26 percent to diversify investments; 25 percent to rent to others; 16 percent for the tax benefits; 14 percent for use by a family member, friend or relative; and 6 percent because they had extra money to spend. Last year, 19 percent of vacation homes were purchased in the Northeast, 16 percent in the Midwest, 41 percent in the South and 24 percent in the West.

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. Fifty-one percent of investment-home buyers said they bought the property to provide rental income; 39 percent to diversify investments; 21 percent to use for vacations or as a family retreat; 16 percent for use by a family member, friend or relative; 11 percent for tax benefits; 10 percent to use as a primary residence in the future; and 4 percent because they had extra money to spend. Twenty-three percent of investment properties purchased in 2007 were in the Northeast, 19 percent in the Midwest, 38 percent in the South and 21 percent in the West.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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