According to a report by the National Association of Realtors, sales of vacation homes soared last year; up 64.5 percent from sales in 2010. Investors zeroed in on 1.23 million vacation homes owing to the “perfect storm” of market conditions—low interest rates, falling house prices, and more affordability.
A survey conducted by NAR showed vacation home buyers also came out in larger numbers in 2011, as sales increased by 7 percent from the previous year. When asked why vacation home sales skyrocketed, NAR economist Lawrence Yun said that investors and second-home buyers have swooped down onto the market because of great bargains.
The vast majority of vacation homes purchasers have been investors who intend to make cash off rental, 41 percent of whom purchased more than one vacation home last year. The median number of homes bought per investor was 3, up from 2 the previous year. Of those who purchased a vacation home in 2011, a massive 91 percent plan on renting out the property, according to the NAR survey.
In addition, these second home buyers, nearly half (42 percent to be precise) of them investors, paid for their new properties with cash. Even those who financed their home by securing a mortgage put a substantial amount towards the down payment. The median down payment for vacation home buyers and investors was a sizable 27 percent. Investors, it would seem, see real estate as a profitable investment, and are willing to pay in cash.
The veritable shopping spree can be attributed to the growing number of foreclosures. Distressed sales, whether from short sales or foreclosures, comprised over half of all investor purchases and 39 percent of vacation home purchases, contributing to the 2011 surge.
Today, with record low interest rates and bottomed out prices, buying is more affordable than renting. Indeed, over half of all real estate investors admitted that they purchased properties in 2011 to generate rental income. For those with unfavorable credit scores, however, refinancing is still a hurdle; which means a steady supply of renters for real estate investors.
Top Vacation Home Markets
For those who have been waiting for bargains on vacation homes, now is the time to take advantage of good deals and record low interest rates. As sellers with distressed properties become more anxious to close a deal, they are more willing to provide a bargain.
According to Zillow, a real estate shopping site, the list of promising places to purchase a vacation home is only growing. In Aspen, Colorado, a ski resort town, local real estate prices are 25 percent below 2007 prices, at a median price of $1.7 million. In the golf Mecca Hilton Head, South Carolina, local real estate agents saw sales on the island rise 13 percent during 2011.
As buyers and investors begin to flood the vacation home market, prices can be expected to rise. Renewed confidence, low prices, and the waning economic distress create a sense of urgency for buyers to enter the market. If you’ve been holding out for the lowest possible prices, now may be the time to make your vacation home purchase.