Second-Home Market is Booming! Who, What, Why?
The second-home market is booming. According to the National Association of Realtors, there were 2.82 million second-homes sold in 2004, up 16.3% from 2003 – accounting for more than one-third of residential transactions. Numerous factors are fueling this rise, and it is not just the affluent market that is driving the trend. While 64% of second-home buyers are 55+ and wealthy, younger groups and the middle class are joining them.
Being such a dominant factor in the real estate industry, the second home market warrants a closer look. What are some of the issues driving this unprecedented growth?
Baby boomers are hitting their prime.
Without question, this demographic leads the trend. Not only do baby boomers have the means and the motivation to take advantage of the attractive housing market, but they also represent a high percentage of the population. In their peak earning years, many boomers are also equity-rich, with homes that have appreciated significantly over time. That kind of buying power puts them in a prime position to purchase second and sometimes even third homes.
Boomers may be planning to retire in a few years and want to lock in rapidly escalating prices now at low interest rates in order to buy homes that serve as short-term vacation residences and future retirement homes. Or, they intend to work for several more years, but, in the meantime are seeking an appealing recreational attraction for holiday weekends and vacations with children and grandchildren.
In many cases, boomers are opting for vacation properties they can enjoy in the off-season and rent out during peak vacation months, with the goal of covering expenses while the property appreciates.
Boomers tend to buy in either Sunbelt areas for vacation and ultimately retirement, or within two hours’ driving distance for enjoyment with family and friends on weekends. Interestingly, some retirees who initially bought in traditional locations like Florida and Arizona have later opted to return to a location nearer to their family members, perhaps in a resort setting but closer to home.
Wealthy Americans are ramping up home purchases.
Despite what some consider a tepid economy, the number of wealthy Americans continues to rise. The number of millionaires in America reached record highs in 2004, hitting 7.5 million – a gain of 21%, the largest jump in the number of U.S. millionaires since 1998, according to the Spectrem Group, a Chicago-based research firm.
And many of these people plan to invest their money in real estate. A recent survey of the wealthiest 10% of Americans revealed that 8% reported plans to acquire a vacation home in the next year, up from less than 6% a year ago. Adding to the volume is the fact that more of these affluent buyers are buying multiple homes, making “second” home somewhat of a misnomer.
This wealth is spurring a new kind of second home. While 20 years ago the second home was a small cottage at the beach or a rustic A-frame in the mountains, today it is the ‘dream’ home for many, which is often more palatial than the primary residence.
Career issues drive second home sales.
Longer hours in the workplace, two-career families and other work-related issues can spur the desire or need for second homes.
An increasing number of couples include one retiree and one spouse still in the work force, resulting in ownership of one home in a lake, golf or beach community as well as a condo or cluster home near the workplace. Dual career couples with jobs in different cities might also require homes in each location.
Corporate upheavals can impact the need for second homes, causing some workers to opt to buy a small condo and commute for a time to ensure job security before they uproot the family. Long hours in the office lead some commuting executives to purchase pied-à-terres in the city to give them a place to stay overnight. (This is also a growing trend for suburbanites who want to spend weekends in the city.)
Extra work hours can also impact the location of recreational homes people are buying. As Americans spend more time at the office, they find that three and four-day weekends are often more doable than week-long vacations in remote destinations. They are seeking weekend retreats within driving distance…lake, shore, golf or mountain properties that serve as a hub for extended family and friends without incurring significant travel expenses.
Moderate income families are also getting in on the trend.
As noted previously, these days, acquiring a second home is not something reserved for the wealthiest Americans. More moderate income families are finding reasons and ways to get in on the action. A recent presentation by NAR Chief Economist David Lereah, Ph.D, noted that the typical investment home was valued at $148,000, while the typical vacation home was valued at $190,000 – lower than the million dollar dream homes some would expect.
Low interest rates and creative financing options – such as interest only loans – have also fueled the second homes boom. Other families are making it happen with shared purchases, going in with other family members or friends to share the costs and justify the usage of recreational homes. This arrangement allows them to attain something they might not be able to without pooling resources.
Others have different reasons for buying. Many families are opting to purchase condos for their undergraduate or graduate school children as a quasi-investment and as an alternative to campus housing, which can be expensive, scarce or undesirable. Some are buying around campus for a different reason; rabid football fan alumni desire a place to stay when they go back for football weekends. This trend has become prevalent enough that there are actually time-shares based around it. We have started to call these “event” homes.
What it means…
Clearly, the second home market is big business for the real estate industry, with no signs of slowing down. Impacting markets across the country and demographics across the board, second home and investment purchases represent a whopping 36% of the home market. Real estate professionals who tune in to the desire of customers for multiple homes – whatever their reasons – will enjoy greater success and capture more business from their client base. Agents who promote their ability to help clients buy second homes elsewhere can enjoy significant incremental referral income…and if the client is also a friend, maybe the loan of a weekend getaway in the process!