Baby Boomers closing out their “peak financial years” are shopping for second homes and swooping up the bargains, but the second home market is still tepid. The benefits: a long-term investment and hedge against inflation if they are buying at the bottom, and income potential through rental. If Boomers are looking toward retirement or a scaling back of work, many see a future retirement home in the second home. That is, they want to lock down a place now while prices are low in anticipation of selling the larger family home eventually.
Why is this so different from the way Boomer’s parents operated? Most Boomers bought their home, paid it off, and stayed in it until they moved (or were moved) to a retirement home. My uncle lived in his home until he died at the age of 100. But dynamics that made this scenario attractive have changed. Property taxes, for one, are rising in urban areas, as is crime and traffic. Federal tax laws have changed and may change again, making home ownership more (or less) attractive. As income dips, real estate investment can provide additional tax benefits or shelter. Children are spread across the globe and may not be able to take care of an elderly parent in the family home. Boomers lived in homes that average less than 2,000 square feet. Their children (baby boomers) bought and built bigger homes that eventually become costly or cumbersome to maintain.
Demographically, the typical vacation-home buyer is about 46 years old, has a median household income of $87,500, and purchases a property that is a median distance of 348 miles from their primary residence, according to the National Association of Realtors. (About 34 percent were within 100 miles of their primary residence, and 40 percent were more than 500 miles away.)
Annually, between 10-27 percent of all homes sold in the United States are in the vacation homes, second home or investment home category. And those numbers will increase because vacation homes are a bargain right now. The median price of a vacation or second home was $150,000 in 2010, down a whopping 11.2% from a year earlier, according to the NAR. Nationally, values at primary residences fell 4.5% in 2010. Nearly 40% of vacation home sales were cash sales, and if a buyer did obtain financing, they put a bunch down, 30 to 40% down. Finally, most vacation home buyers wanted the great deals and found them: nearly 17% of the investment homes they bought were foreclosures.
Those percentages were little changed for 2010 as home sales declined across the board. There were 543,000 vacation homes sold, down from 553,000 in 2009; investment purchases fell to 867,000 from 940,000.
One factor depressing sales was the difficulty in getting mortgages due to tight credit markets. Buyers often did an end-around this problem by paying cash. Nearly 40% of vacation home sales were cash deals, while nearly 60% of investment deals were handled that way.