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Future of Second-home Market Still Bright, Despite Decline in Sales

More buyers pay cash for second homes.

Wednesday, April 1, 2009

The housing market troubles have stretched to the second-home market, but even as sales declined in 2008, buyers paid cash for these homes and future prospects for the vacation- and investment-home market look bright.

The National Association of REALTORS® reports the combination of vacation- and investment-home sales dropped to 30 percent of all existing- and new-home transactions in 2008. Yet more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties.
NAR's 2008 Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.8 percent to 512,000 last year from 740,000 in 2007; investment-home sales fell 17.2 percent to 1.12 million in 2008 from 1.35 million in 2007. Primary residence sales declined 13.2 percent to 3.77 million in 2008 from 4.34 million in 2007.

The decline of sales in this market is not a surprise given the weak economy, according to NAR chief economist Lawrence Yun, but he noted the long-term demand looks good because of a large segment of the population in the prime years for buying a second home. Currently, 39.2 million people in the U.S. are ages 50 to 59 – a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.

"While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain," Yun said. "Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade."

The median price of a vacation home was $150,000 in 2008, down 23.1 percent from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28 percent below the 2007 median of $150,000.

"Just like in the primary residential market, sales of distressed homes which have been deeply discounted have affected the median price of second-homes," explained Julia Keady, president of the Silicon Valley Association of REALTORS®. "So just like in the primary residential market, for those thinking of a vacation home or investment property, now is a good time to buy."

According the report, eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 71 percent of primary residence buyers. Keady however stressed, due to the complicated economic environment, new programs, guidelines and regulations, it is especially important for buyers to work with a REALTOR® who knows local market conditions well and can help them navigate the transaction process.

The typical vacation-home buyer in 2008 was 46 years old and had a median household income of $97,200. When asked about their reasons for purchasing a vacation home, 89 percent of buyers wanted to use the home for vacation or as a family retreat; 27 percent to diversify investments; 27 percent to rent to others; 26 percent to use as a primary residence in the future; and 17 percent for use by a family member, friend or relative.

Investment-home buyers in 2008 had a median age of 47 and earned $85,000. When asked about the most important reasons for purchasing an investment home, 58 percent said to provide rental income; 38 percent to diversify investments; 19 percent for use by a family member, friend or relative; and 15 percent to use for vacations or as a family retreat.

NAR's 2008 Investment and Vacation Home Buyers Survey, conducted in March 2009, includes answers from 1,924 usable responses. The survey controlled for age and income, based on information from the larger 2008 NAR Profile of Home Buyers and Sellers.


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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