By
Noelle Knox
USA TODAY
4/5/06
Americans snapping up second homes — as
investments or vacation properties — accounted for
four out of every 10 sales of existing homes last year,
a record that helped drive the real estate market to new
highs, according to a report being released today by the
National Association of Realtors.
Nearly 28% of homes bought last year were for investment
purposes, and an additional 12% were vacation homes, the
figures show. Most of the buyers were baby boomers in their
top earning years, looking toward retirement and hoping
to build wealth or find a more desirable place to live.
"Baby boomers are such a powerful economic force," said
Dave Jenks, co-author of The Millionaire Real Estate Investor. "They're
using their wealth to go buy second homes."
The typical investment buyer last year was 49 years old
with annual income of $81,400. He or she paid $183,500
for the median-priced investment home, up 24% from 2004.
"Real estate, over the past five years, has outperformed
virtually every other investment vehicle," said Ron
Peltier, president and chief executive of HomeServices
of America, the country's second-largest residential brokerage
firm. "A lot of people have just speculated in real
estate."
The trend really started after 1997, when Congress changed
the tax code, allowing most homeowners to duck capital
gains taxes when they sold their homes. The exemption is
$500,000 for married couples, $250,000 for singles, if
it was their primary residence for two of the past five
years.
Under the old system, the only way to avoid the tax was
to "roll" the gains into another home of equal
or greater value. Americans bought bigger and costlier
homes. But now, they can downsize and use the equity built
up in their homes to buy second homes.
"That's what spurred all this on in the beginning," says
David Lereah, the NAR's chief economist. "It's like
all the stars are aligned. The tax situations helped, but
at the same time, baby boomers were entering their peak
earning years. That's why we just boomed in second homes."
He thinks the trend crested in 2005. With rising interest
rates, tighter lending standards and slower price appreciation,
Lereah expects second-home sales to drop this year to 30%
of all existing-home sales, and maybe into the 20% range.
"What's going to be leaving the market right now
are the speculative investors who came into the market
and were trying to flip homes," he said. "They
were buying one, two, three or four properties at a time,
and that was distorting the numbers."
Sales of vacation homes, though, are expected to stay
strong for years, because the youngest baby boomers are
only 42 this year.
The typical vacation home buyer last year was 52 years
old, earning $82,800 a year, and purchased a property that
was about 200 miles from the primary residence. The median
price was $204,100, up 7.4%.
More than three-fourths of the buyers had no interest
in renting their property. About 20% said it would one
day be their retirement home.
Joe Klein and his wife bought their first vacation home
last year on Lake Wabedo in Minnesota, three hours from
their primary residence. He says he might like to retire
there but might have to persuade his wife.
"It's something that we could hand down to the kids," says
Klein, 42, a program manager for a medical company. "But
secondly, I see it as an investment. If we had to, we could
sell it to help pay for their college."
As Baby Boomers hit their peak earning years, they are buying up second homes for investments or vacation properties. Last year, second-home purchases accounted for almost 40% of all home sales (in millions):
Vacation |
Investment |
2003
- 0.8 |
2003
- 1.6 |
2004
- 0.9 |
2004
- 2.0 |
2005
- 1.0 |
2005
- 2.3 |
Source:
National Association of Realtors
|
