Despite 2016’s strong pace of home sales – the highest in a decade – there was a marked drop in activity from vacation home buyers, according to an annual second-home survey released by the National Association of Realtors® (NAR).
NAR’s 2017 Investment and Vacation Home Buyers Survey revealed that vacation home purchases last year decreased to an estimated 721,000, down 21.6% from 2015 (920,000) while investment-home sales in 2016 rose 4.5% to 1.14 million. Owner-occupied purchases bounded upward 12.5% to 4.21 million last year – the highest level since 2006 (4.82 million).
The two highest cited reasons for buying a vacation home were a) vacations or as a family retreat (42%) and b) future retirement (18%). Investors, on the other hand, purchased to generate income through renting (42%) and for potential price appreciation (16%).
“The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase,” commented Lawrence Yun, NAR Chief Economist.
The NAR survey additionally implicated that vacation and investment buyers were more inclined to use their property as a short-term rental in 2016. Forty-four percent of investors and 29% of vacation home buyers either did or tried to rent their property last year and plan to do so again in 2017. Given the rising popularity of short-term rentals in locations throughout the country, it’s unsurprising that there were slightly more investment and vacation home buyers renting their property for less than 30 days.
At 19%, the portion of investment sales remained unchanged for the third year in a row while owner-occupied purchases escalated to 70%. Vacation sales comprised 12% of all transactions in 2016, which was the lowest segment since 2012.
Due to continuously constricted property inventory conditions, the median sales price of both vacation and investment homes last year spiked to the highest levels in nearly a decade. The median vacation home price was $200,000, (4.2% increase), the highest since it hit the same $200,000 level in 2006. The median investment-home sales price was $155,000, up 8.0% and the highest it has been since 2005.
NAR’s Yun stated, “…home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale. With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.”