Vacation Home Sales Down 30 Percent Last Year

Sales of vacation homes fell sharply in 2008, in both actual numbers and as a share of the total real estate market, according to a newly released survey from the National Association of Realtors (NAR).

With the economy already cooling fast in 2008, vacation home sales fell to 512,000, down from 740,000 in 2007, a more than 30 percent drop. Sales of second homes for investment purposes also declined, but held steady in terms of their proportionate share of the overall housing market.

"We expected vacation-home sales to fall given the impact of a declining economy on discretionary purchases," said Lawrence Yun, chief economist for NAR "A steady share of investment-home sales results from buyers taking advantage of deeply discounted prices in many areas, with a smaller portion of new homes in the sales mix."

Many paid cash

Interestingly, over 40 percent of all investment home buyers paid cash for their purchases, as did over 30 percent of vacation home buyers. Many cited portfolio diversification as a factor in their purchase decision.

Twenty-one percent of all home purchases in 2008 were for investment purposes, the same as the year before. Sales of vacation properties, meanwhile, declined to 9 percent of the market, down from 12 percent in 2007. By comparison, purchases of second homes, for either vacation and investment, made up 40 percent of the market in 2005.

The total number of investment home sales declined to 1.12 million from 1.35 million in 2007, a 17 percent drop. Sales of primary homes declined 13 percent in 2008, to 3.77 million from 4.34 million the year before, but increased slightly as a share of the total home sales market, to 70 percent.

Long-term demand called strong

Despite weakening second home purchases in 2008, the NAR believes the long-term demand looks favorable because there are large numbers of people in the prime years for buying a second home. Currently, 39.2 million people in the United States are ages 50 to 59 - a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.

"While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain," Yun said. "Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade."

Typical buyers in their mid-40s

The median price of a vacation home was $150,000 in 2008, down 23.1 percent from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28.0 percent below the 2007 median of $150,000.

The typical vacation-home buyer in 2008 was 46 years old, had a median household income of $97,200, and purchased a property that was a median of 316 miles from their primary residence; 35 percent were within 100 miles and 36 percent were 500 miles or more.

Investment-home buyers in 2008 had a median age of 47, earned $85,000, and bought a home that was fairly close to their primary residence - a median distance of 19 miles.