Taking Advantage Of The Vacation Home Boom (Part 1 of Chapter 10)
Chapter 10: Taking Advantage Of The Vacation Home Boom taken from David Lereah’s new book, Are You Missing the Real Estate Boom? : Why Home Values and Other Real Estate Investments Will Climb Through The End ofThe Decade - And How to Profit From
Today, one of the fastest-growing sectors of the real estate market is vacation homes. In 2003 (data is not yet available for 2004), Americans bought approximately 450,000 second homes, of which most were vacation properties. A vacation property, given favorable demographic trends, is a powerful, long-term investment, one that will significantly increase your ability to profit from today's real estate boom. In the most popular vacation markets, properties are appreciating at more than twice the rate of homes in the national housing market, suggesting that vacation purchases could be the most rewarding of all residential property investments.
In almost every resort area across the nation, vacation property sales and price appreciation are soaring. I predict that they will continue to rise, particularly in the most popular locations for second homes-- places such as Hilton Head and Myrtle Beach, South Carolina; Park City, Utah; Naples, Florida; and Sunriver, Oregon. But there are thousands of locations where you can find the vacation home of your dreams. Many (aside from the hot spots) offer you the opportunity to purchase a property at a bargain price today, which means you can look forward to a strong return on your investment tomorrow. If buying a home is the most important investment in your life,then buying a vacation home may well be the second most important investment in your life. In this chapter, I'll show you how to find the right vacation home for you--one whose value will grow. Sales and price appreciation information on second homes is difficult to come by, but I will provide you with a sense of the robust performance of the vacation property marketplace in the next section.
The Vacation Market Is Booming
Data is scarce on the performance of the vacation-home marketplace. The most recent national survey on second homes was conducted by the National Association of Realtors® back in 2002. There have been smaller second-home surveys conducted by NAR and others since, as well as a great deal of anecdotal local information. (There will be another national survey conducted in 2005.) Putting all of this together, I can confidently say that the vacation property market is booming. Second-home buying has become increasingly popular. As of 2003, there were approximately 6.6 million second homes in the United States, and most of these homes were classified as vacation properties. Vacation properties make up about 80 percent of the second-home sales (the remaining 20 percent are rental properties). Second homes typically account for 5 to 6 percent of total home sales per year. More important, sales of second homes have risen steadily during the past twenty-five years. Second-home sales totaled 288,000 in 1989 and rose to 359,000 in 2001. They are estimated at 445,000 in 2003. I believe second-home sales will have approached 500,000 in 2004. Over the past fifteen years, sales of second homes have been explosive, increasing by 50 percent during the 1991-2004 period. Getting a handle on home price appreciation for second homes is difficult, to say the least. According to the NAR second-home survey, second-home prices rose by 27 percent during the 1999 to 2001 period. The median second-home price was $162,000 in 2001, compared to a 1999 median home price of $127,800. Since then, we have had to rely on a great deal of anecdotal information from real estate agents across the nation, as well as some smaller surveys conducted by NAR and others on second homes. The information gathered suggests that the second-home market has experienced brisk sales and strong price appreciation due to strong demand and lean inventories during the past several years. The median home price in 2004 is now probably in the range of $200,000 to $210,000.
A survey by EscapeHomes.com found that home values in ten select markets known to attract second and vacation home buyers rose 22 percent, from $419,000 to $511,000, during the period spanning the second quarter 2003 to the second quarter 2004. The EscapeHomes.com survey examined real estate agent and multiple-listing data from:
Bend, OR
Holden Beach, NC
Incline Village, NV
Myrtle Beach, SC
Naples, FL
Park City, UT
Santa Barbara, CA
Sarasota, FL
St. Helena, CA
Truckee, CA
Although this survey is too small and confined to be of much use to most buyers, it does suggest that the popular second/vacation-home markets can offer a better return on your investment than most primary residential real estate properties. Who makes up this second-home market? According to the 2003 NAR Profile of Home Buyers and Sellers Survey, 78 percent of second homes are bought for recreational use (i.e., vacation). In recent years, there has been an increase in the number of home owners renting out their second homes for periods of time in order to generate investment income. In 2002, the median age of second-home buyers was forty-seven, compared with forty for all home buyers and thirty-two for first-time buyers. The median income of second-home buyers was about $86,000 in 2002, compared to $65,500 for buyers who own only one home. I expect the second-home market to continue to experience robust growth over the next decade. Another 2003 NAR survey suggests that during the first quarter of 2003, 15 percent of home buyers purchasing a second home already owned a primary home or were buying a new primary home and keeping their existing one as a second home. Most housing forecasters I know expect Americans to purchase more than 4 million second homes over the next ten years, helping drive demand.
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