If you have a vacation house that you’re ready to sell, the timing may not be the best, according to a report by CNBC, with sales of vacation homes slumping by about 20 percent in 2016 to the lowest level in three years.
While markets in popular destinations for vacation homebuyers remained strong, including the South and West, Lawrence Yun, NAR’s chief economist, said vacation home sales slumped in 2016 as demand outpaced supply.
“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.”
According to the NAR report, vacation home sales are now down 36 percent from a peak in 2014. Yun explained that volatility in the financial markets in late 2015 which lagged into 2016 prompted wealthy buyers to put off their purchases. Jonathan Miller, president and CEO of Miller Samuel, said sales fell a steep 14.5 percent at the end of the year in the Hamptons on Long Island, N.Y.
“In the Hamptons, we saw a reset in sales. Prior to that, in 2014-5, we had an atypical period of second home activity, an unusually high point. Part of it was because ’14 and ’15, for the second home market, was a release of pent-up demand after the financial crisis.”
NAR’s report also notes that while vacation sales dropped, rentals have seen an increase. As a result, investors have boosted their purchases and many are renting to short-term vacationers.
Prices also are on the rise and a report by the National Association of Realtors found that buyers are willing to seek a mortgage to cover the difference. Overall, the number of vacation buyers who paid cash fell 10 percentage points to 28 percent compared to 2015. NAR’s Yun also noted that cash purchases by investors decreased to 35 percent from 39 percent in 2015 and 41 percent in 2014.
“Sales to individual investors reached their highest level since 2012 (1.20 million) as investors took advantage of record low mortgage rates and recognized the sizeable demand for renting in their market as renters struggle to become homeowners. 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.”
NAR’s survey also found that the typical income of both vacation and investment buyers declined year-over-year, from $103,700 to $89,900 for the vacation buyers and $95,800 to $82,000 for investment buyers. However, both types of buyers were most likely to purchase a single-family home in the South. The vacation buyers leaned toward a beach location and investors were more likely to select a suburban area.
The report also found that the leading reasons to purchase a vacation home were to use for vacations or as a family retreat (42 percent) and for future retirement (18 percent).
For investors, the top reason to buy was to generate income through renting (42 percent) and for potential price appreciation (16 percent).