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Second Home Sales Rose To Record Breaking Levels In 2005

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Second homes, including both vacation homes and investment properties, rose to new heights in 2005, with 40 percent of home purchases being vacation homes or investment properties, the National Association of Realtors reported in a press release today.

Vacation homes rose last year by 16.9 percent to a new record of 1.02 million, according to NAR, from 872,000 in 2004. Investment properties increased to 15.7 percent, or 2.32 million in 2005, up from just 2.00 million in 2004. NAR reported that 27.7 percent of all homes purchased in 2005 were for investment, while 12.2 percent of home purchases were vacation homes. Total second home market share rose to 39.9 percent in 2005, up from 36.0 in 2004.

NAR’s chief economist, David Lereah, had this to say, regarding the record-breaking second home sales:

“To begin with, the baby boom generation is driving second home sales – they’re at the optimum point in life when people become interested in second homes, they’re at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments,” Lereah said.

Lereah said there are significant motivational differences between vacation-home buyers and investment buyers. “Vacation-home buyers are making lifestyle choices and purchasing primarily for their own enjoyment,” he said. “Investment-home buyers are seeking rental income and portfolio diversification, although vacation-home buyers also mentioned diversification.”

Reasons for a vacation home purchase varied. Approximately 41 percent of vacation homebuyers said they would use their second homes as vacation homes, while 28 percent said they would use them primarily for family retreats, and 28 percent said they purchased them as investments. Of those who purchased second homes as investments, 55 percent purchased them for rental income, while 35 percent of investment buyers purchased to diversify their investments. According to the release:

One-third of vacation-home buyers and 36 percent of investment-home buyers said it was very likely that they would purchase another home, in addition to properties currently owned, within the next two years.

Lereah said it is difficult to project where the market will go in 2006. “Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase,” he said. “Discretionary purchases of that nature are more likely in a healthy economy, and that is looking positive as well.”

Here in Florida, where many baby boomers are buying now in anticipation for retirement later, second homes purchased as vacation homes and as investments are likely to remain strong, especially with prices having leveled off somewhat from 2005 in some areas.

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