Sales of vacation properties fell 30.6 percent in 2007 compared to the prior year, with investment-property purchases down 18.1 percent, according to an Investment and Vacation Home Buyers Survey report released by the National Association of Realtors.
Total sales of new and resale homes used as primary residences, by comparison, dropped 10 percent from 2006 to 2007, survey results revealed.
Based on responses from 1,965 second-home buyers, the survey concludes that investment-property purchases accounted for 21 percent of total home sales in 2007, down from 22 percent in 2006; while purchases of vacation properties accounted for 12 percent of all home sales in 2007, down from 14 percent in 2006. The survey was conducted this month and controlled for age and income.
Real estate professionals tell Inman News that foreign buyers are taking advantage of lopsided currency values against the U.S. dollar in some market areas and are propping up second-home sales while many U.S. buyers are taking a wait-and-see approach. Markets with luxury properties can be more immune to the slowdown in second-home sales, real estate professionals also report.
Total sales of resale homes, including sales of single-family homes and condos and co-ops, dropped 12.8 percent from 2006 to 2007, NAR has reported, to 6.48 million. And sales of new single-family homes dropped 26.4 percent year-over-year in 2007, falling to 774,000.
There were an estimated 740,000 sales of vacation properties, 1.35 million sales of investment properties and 4.34 million sales of primary residences in 2007, according to the survey.
The median sales price of vacation properties was estimated at $195,000 in 2007, down 2.5 percent from a year earlier, while the median sales price of investment properties remained flat at $150,000 compared to the prior year, according to the survey. By comparison, the median U.S. resale home price was $218,900 in 2007, down 1.4 percent compared to 2006. And the median U.S. new-home price was $247,300 in 2007, up 0.3 percent compared to the prior year.
In last year’s second-home survey, NAR reported that vacation-home sales grew 4.7 percent in 2006 to a record 1.07 million, while investment-home sales fell 28.9 percent to 1.65 million. That followed a record 2.32 million investment-home purchases in 2005.
Second-home purchases represented an estimated 40 percent share of total home sales in 2005, compared with 36 percent in 2004 and 2006, and 33 percent in 2007.
Heather Joubran, a Realtor for RE/MAX Central Realty in Lake Mary, Fla., an Orlando suburb, said U.S. residents have definitely scaled back on second-home purchases in the Orlando area, but buyers from the United Kingdom, Eastern Europe and Central America "are gobbling up second homes at a pretty substantial rate."
Some of the foreign buyers are particularly eyeing foreclosure properties, and coupled with the power of their currencies against the U.S. dollar, "they are picking them up for pennies on the dollar," she said. Finding properties for half the price that they were originally listed at is not uncommon these days, she said.
While U.S. buyers of second homes may view the properties as an eventual retirement home, foreign buyers more typically are looking to rent out the properties for a profit. Foreign buyers are more likely to engage in cash transactions than U.S. buyers, she said.
While Joubran said that sales in the Orlando market are not substantially off from last year’s sales, the inventory is huge. There is an estimated 34-month supply of for-sale home inventory, she said, which means that it could take nearly three years to exhaust the current supply of homes given the sales rate and large number of properties on the market.
The high inventory and foreclosure rates in the region "hasn’t helped our pricing," she said. That has made U.S. buyers particularly reluctant.
"They just won’t make a commitment; they are stuck on the fence," she said, adding that they are worried about what will happen if they buy now and the prices drop further. "Nobody can time (the bottom) in real estate." There are deals aplenty, though, she said, citing examples of properties that had earlier sold for $350,000 now reduced to $200,000.
In the Miami area, home prices have dropped about 20 percent, but they may still be highly inflated due in part to rampant speculation and incidents of fraud, said Jack McCabe, of McCabe Research and Consulting, a real estate consulting firm based in southeast Florida.
The influx of foreign buyers — which he expects to rise in the coming months, may lead to an overall statistical increase in sales in that market area. And while real estate agents may cheer such numbers, McCabe said that they may actually reflect a "false bottom" for the market, as U.S. buyers are not lining up to return to the market. "The international buyers definitely are the largest buyer segment right now in Florida."
Out-of-state residents who typically flock to vacation-home markets in Florida may have much bigger worries these days — like job losses and a tough economy, McCabe said. Florida has been a popular second-home destination for Manhattanites, and that may dry up a bit with the current crises on Wall Street, he said. "I think we’re definitely going to see a continued decline in sales to Northeasterners, to New Yorkers — especially to those in Manhattan. This is the year that Main Street catches up with Wall Street."
Second-home buyers are among the throngs of upset condo buyers who are now signing on to lawsuits in an effort to withdraw from their initial deposits that they placed on the units when the market was booming. And some lenders have essentially "blacklisted some condo buildings for mortgage loans because of declining market values," he said.
McCabe said that until prices drop more in Florida, he expects U.S. second-home buyers may look abroad to developments in Costa Rica, Belize or Mexico, he said. "I see a lot more opportunity for second homes that are out of the country."
In Summit County, Colo., a popular ski destination, Realtor Joanne Hanson said that the second-home market is still going strong for properties at the high end and low end of the market, though there has been slowing in sales for mid-range properties.
Most of the buyers that Hanson works with are in-state buyers from the Denver and Colorado Springs market areas, she said, as Summit County is within driving distance.
She said that she just closed a sale on a $2.3 million property. And at the other end of the price spectrum, she recently listed a condo for $359,000 that has had five showings in the past two days.
While total transactions are down, the numbers have more to do with a decline in inventory than a decline in buyers, she said.
The July through October sales will truly show how the market is faring this year, she said, as those are typically the most active sales months in the region.
"I’m counseling sellers to be realistic when they price — not to get too ambitious in how much money they get," she said. There are typically a small share of foreclosures in the market area, and foreclosures haven’t (increased) much in her market area, she also said. But she has seen more owners motivated to sell their second homes in the area because the housing markets where their primary residences are located aren’t faring so well, she said — "they need to cash out."
According to the NAR survey, the median age of vacation-home buyers is 46, compared with 42 for investment-property buyers and 38 for purchasers of primary residences. And the median income for vacation-home buyers is $99,100, compared with $92,900 for investment-property purchasers and $71,700 for buyers of primary residences.
Fifty-nine percent of vacation homes purchased in 2007 were detached single-family homes, 29 percent condos, 7 percent townhouses or row houses, and 5 percent were other types of homes. In 2006, single-family homes accounted for 67 percent of vacation-home sales, while condos were 21 percent, NAR reported in the survey results.
Sixty-one percent of investment homes purchased in 2007 were detached single-family homes; 20 percent were condos; 11 percent were townhouses or row houses; and 8 percent were other. Twenty-eight percent of vacation-home buyers paid cash for their property, and 35 percent of investment buyers paid cash for their properties.
Lawrence Yun, NAR chief economist, noted in a statement that "second homes are discretionary purchases and there is a natural tendency to pull back from big-ticket items in periods of uncertainty." Another factor, he said, "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."
According to the report, 84 percent of buyers stated that they 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.
Nineteen percent of vacation homes purchased last year were in the Northeast, 16 percent in the Midwest, 41 percent in the South and 24 percent in the West, the report revealed. Thirty percent of vacation homes were purchased in rural areas, 20 percent in resorts, 20 percent in a suburb, and 14 percent in an urban area or central city.
When asked about the most important reasons for their purchase of an investment home, 51 percent said 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, according to the report.
Twenty-three percent of investment properties bought last year were in the Northeast, 19 percent in the Midwest, 38 percent in the South and 21 percent in the West; 39 percent were purchased in a suburb, 20 percent in an urban or central city area, 21 percent in a small town, 15 percent in a rural area, and 5 percent in a resort area.
Vacation-home buyers plan to hold onto the property for a median of 10 years, while 38 percent plan to keep it for 11 or more years. Investment buyers plan to hold their property for a median of four years, with 29 percent planning to keep for six years or more and 10 percent planning to sell in a year or less.
Also, the report found that 80 percent of second-home buyers consider it a good time to invest in real estate, compared with 59 percent of buyers of primary residences, and 44 percent of vacation-home buyers and 57 percent of investment buyers said they were likely to purchase another property within two years.
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