Vacation home sales cooled off in 2015 but remained at the second highest amount in nearly a decade, while investment purchases increased for the first time in five years.
According to an annual survey of residential home buyers released last week by the National Association of Realtors, the median sales price of both vacation and investment homes surged in 2015.
NAR's 2016 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2015, found that vacation-home sales last year declined to an estimated 920,000, down 18.5% from their most recent peak level of 1.13 million in 2014.
Investment-home sales in 2015 jumped 7.0% to an estimated 1.09 million from 1.02 million in 2014. Owner-occupied purchases jumped 15.9% to 3.74 million last year from 3.23 million in 2014; the highest level since 2007 (3.93 million). Sales estimates are based on a national online survey including responses from over 2,000 U.S. adults who purchased a residential property in 2015, and exclude institutional investment activity.
Lawrence Yun, NAR chief economist, said vacation sales took a sizable step back in 2015, but still came in at the second highest amount since 2006 (1.07 million).
"Baby boomers at or near retirement continue to propel the demand for second homes, although headwinds softened the overall volume of vacation sales last year," he said.
"The expanding pool of buyers amidst a dwindling number of bargain-priced properties led to tighter supply and fewer sales and caused the price of vacation homes to rise," he added. "Furthermore, the turbulence that hit the financial markets the second half of the year likely seized some would-be buyers' available cash."
The median sales price of both vacation and investment homes soared in 2015. The median vacation home price was $192,000, up 28.0% from $150,000 in 2014. The median investment-home sales price was $143,500, up 15.3% from $124,500 a year ago.
According to Yun, many of the metro areas with the strongest price appreciation in 2015 were in the South, which was the most popular destination for vacation buyers and particularly in several Florida markets. While increased buyer demand contributed to the run-up in prices, it also likely squeezed less affluent households looking to purchase vacation properties.
Vacation-home sales accounted for 16% of all transactions in 2015, down from 2014 (21%), but still the second highest share since the survey was first conducted in 2003. The portion of investment sales remained unchanged from a year ago at 19%, and owner-occupied purchases increased to 65% (60% in 2014).
"Despite a smaller share of distressed properties coming onto the market, investment purchases reversed course in 2015 after declining for four straight years," Yun said. "Steadily increasing home prices and strong rental demand appear to be giving more individual investors assurance that purchasing real estate will diversify their portfolios and generate additional income if they decide to rent out the home."
This year's survey found that in addition to longer-term rentals, investors are most likely to attempt to and rent their properties for less than 30 days. Among investors, 42% did or tried to rent their property in 2015 and plan to rent their property in 2016. Twenty-four of vacation buyers did or tried to rent their property in 2015 and plan to rent their property this year. Vacation buyers are more likely to use a property manager or social media to rent their property, while investors are more likely to use a traditional real estate agency.
The share of vacation buyers who paid in cash jumped to 38% from 30% in 2014, while cash purchases by investors decreased to 39% from 41% a year ago. Of buyers who financed their purchase with a mortgage, over half (52%) of vacation buyers and 44% of investors financed less than 70% of the purchase price.
The overall trend of fewer distressed properties (short sale or foreclosure) on the market resulted in vacation buyers and investors purchasing less of them in 2015. Thirty-six of vacation buyers (45% in 2014) and 39% of investors (44% in 2014) purchased a distressed property a year ago.
Vacation-home buyers in 2015 had a higher median household income ($103,700) than those in 2014 ($94,380) and purchased a property that was a median distance of 200 miles away from their primary residence (unchanged from a year ago). Buyers plan to own their property for a median of seven years, an increase from six years in 2014.
With more vacation buyers purchasing single-family homes (58%) compared to a year ago (54%), the share of those buying a condo (25%) or a townhouse or row house (13%) decreased in this year's survey. Forty-percent of vacation buyers purchased in a beach area, 19% purchased in the mountains or at a lakefront and 16% purchased a vacation home in the country.
Nearly half of all vacation homes bought last year were in the South (47%; 41% in 2014), 25% were in the West (unchanged from a year ago), 15% in the Northeast (unchanged from a year ago) and 13% in the Midwest (14% in 2014).
Over one-third of vacation buyers plan to use their property for vacations or as a family retreat (37%), 16% bought for future retirement plans and only 7% purchased to generate income through renting the property, a decrease from 11% in 2014.