Investments Up

Investment property purchases climb as vacation sales fall

Sales of vacation properties in the United States experienced a major decrease in 2016, according to the National Association of Realtors. At the same time, investment home sales were up significantly.

According to the National Association of Realtors' "2017 Investment and Vacation Home Buyers Survey," there were an estimated 721,000 vacation homes sold in 2016. This sales volume was down 21.6 percent from the 2015 tally of 920,000 and at its lowest point since 2013, when 717,000 vacation properties were sold. The total was also down 36 percent from 2014, when vacation home sales reached a recent peak of 1.13 million.

Meanwhile, sales of investment homes stood at an estimated 1.14 million in 2016. This was up 4.5 percent from the previous year's total of 1.09 million.

VACATION HOMES

The limited number of homes for sale helped push up prices on available vacation properties, with the median price for these homes reaching $200,000. This was up 4.2 percent from 2015 and the highest price since 2006, which also had a median of $200,000.

"In several markets in the South and West—the two most popular destinations for vacation buyers—home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale," said Lawrence Yun, chief economist at the National Association of Realtors. "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."

The higher prices were accompanied by a larger share of buyers financing the purchase of their vacation home. Twenty-eight percent bought a vacation home with cash, down 10 percentage points from 2015.

Buyers were more likely to purchase a vacation home with a lower income. The typical household income for a vacation home buyer was $89,900, down from $103,700 in 2015.

Twelve percent of all existing and new home sales in 2016 were vacation properties, down from 16 percent in 2015. This was the lowest share since 2012, when vacation homes made up only 11 percent of all sales.

Twenty-nine percent of vacation home buyer said they rented the property or tried to in 2016 and that they plan to do so again in 2017. This share was up from 24 percent in 2015. Fifteen percent said they didn't rent the property in 2016 but will try to do so in 2017.

By far the most popular reason to buy a vacation home was to use it as a family retreat, with 42 percent of buyers saying this was the reason for their purchase. The next most popular reason, cited by 18 percent of buyers, was to have a home to retire to in the future.

INVESTMENT PROPERTIES

The median sales price for an investment home climbed 8 percent from 2015, standing at $155,000. This price was the highest since 2005, when the median investment home sold for $183,500. The share of investment purchases made with cash dropped from 41 percent in 2014 and 39 percent in 2015 to 35 percent.

"Sales to individual investors reached their highest level since 2012 (1.2 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," said Yun. "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."

Nineteen percent of all existing and new home sales in the U.S. in 2016 were investment homes. This share has remained constant for three consecutive years.

The typical investment buyer had a household income of $82,000. This was down from $95,800 in 2015.

Forty-four percent of investors said they rented or tried to rent their property in 2016 and will try to do so again in 2017, up from 42 percent in 2015. Another 21 percent said they did not rent their property in 2016 but will try to do so in 2017.

Renting was the most popular reason for an investment purchase, with 42 percent of buyers saying they bought the property to generate this income. Sixteen percent said they purchased the property for its potential price appreciation.