Slump isn’t slowing vacation home sales

updated 8:14 p.m. ET April 30, 2007

WASHINGTON - Sales of second homes purchased as investment properties plunged in 2006, but demand for vacation homes remained strong, a real estate trade group reported Monday.

The National Association of Realtors said sales of second homes for investment fell by 28.9 percent in 2006 to 1.65 million. That was down from an all-time high of 2.32 million investment homes sold in 2005, at the peak of the five-year housing boom.

The Realtors, however, said vacation homes were not hurt by the general slump in sales last year. Instead, vacation homes rose by 4.7 percent to a record of 1.07 million units, up from 1.02 million sales in 2005.

According to the NAR survey, 22 percent of all homes purchased last year were for investment, down from a 28 percent market share in 2005. The number of vacation homes purchased last year totaled 14 percent of the total market for new and existing homes, up from a 12 percent share in 2005.

David Lereah, chief economist for the Realtors, said it was not surprising that purchases of second homes for investment purposes had fallen so much because speculators, who had driven up demand during the boom years, abandoned the market last year.

After a period in which sales of both new and existing homes set records for five consecutive years, sales of both fell sharply in 2006 while prices stagnated. The slump in housing has sent shock waves through the rest of the economy, trimming overall economic growth by more than a percentage point.

Lereah said the vacation home market was able to escape the downturn because of strong demographic forces that are propelling vacation home sales.

The NAR survey found the typical vacation-home buyer in 2006 was 44 years old and had a median household income of $102,000. The vacation home was a median of 215 miles from the homeowners’ primary residence, meaning that was the mid-point with 42 percent of vacation homes closer than 100 miles and 32 percent 500 miles or further away.

“The demographics favor vacation-home sales because large numbers of consumers are in the prime buying ages,” Lereah said. “Buyers want recreational property for personal use — investment is a secondary consideration.”

The median, or mid-point, price of a vacation home in 2006 was $200,000, down 2 percent from a median of $204,100 in 2005.

The typical investment home sold for $150,000 last year, down 18.3 percent from $183,500 in 2005.

HomeAway Inc., an online vacation rental company based in Austin, Texas, said that the Realtors’ survey confirmed its findings that baby boomers continue to drive growth in the vacation real estate market.

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