Second homes now are 12 percent of all national sales

From the Summit Daily News, May 28, 2006.

Washington, D.C. -- Are you under the impression that only ski towns and resort valleys have second-home owners? Think again.

The National Association of Realtors reports that vacation properties account for 12 percent of all homes sold last year, and 28 percent of homes were bought for investment purposes.

Typical vacation buyers last year were 52 years old, earned $82,000, and purchased a property that was a median of 197 miles from their primary residence. This profile differed from that of investment homebuyers in just one key respect: investment homes were likely to be close to the original home.

USA Today explains this rally in vacation and investment homes began in 1997, when Congress changed the tax code, allowing most homeowners to duck capital gains when selling their homes. The exemption is $500,000 for married couples, $250,000 for singles, if it was their primary residence for two of the previous five years.

Before, the only way to avoid the tax was to use the gained equity to buy another one of equal or greater value. But now, they can downsize and use the money instead to buy a second home.

Something else is going on. Many baby boomers are entering their peak earning years. The most active buyers of vacation and investment homes are people in their 50's. Currently there are 36 million people in that age bracket. However, with 45 million people in their 40's, the market is expected to remain strong for a long time.

Yet, David Lereah, chief economist for the NAR, believes the vacation- and investment-home buying binge will drop to 30 percent or less of all home sales as compared with the current 40 percent. He cites interest rates, higher lending standards and slower price appreciation.

Susan Gunnin, author of this blog, believes there is still plenty of time to reap the rewards of this phenomenon. In ski resorts such as Breckenridge, Colorado, second homes don't necessarily have to be differentiated from investment homes. In most cases, with prices appreciating and the possibility of short-term rentals, a second-home can be a good investment so the owner can have the best of both worlds.

For more information, see Susan's web site or email her.