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Wealthy couples buying up vacation homes

Who is most likely to own a second home?

Studies using US government data and research by the Harvard Joint Center for Housing Studies show the characteristics of second home owners.

They also studied the locations, definitions and measurements of second homes. The studies show that second homes are owned primarily by white, middle aged homeowners with high incomes, and that 40 percent of second homes are mobile homes. Research on the propensity to own a second home has shown descriptively that age, race and income are associated with second homeownership and wealth is generally assumed to play a role.

In addition, an article released late 2006 by the national association of realtors (NAR) states that there has been a 7% increase in second-home ownership by Hispanics.

Measures and Magnitude of Second Home Demand Statistics on the extent of second homeownership and the number of second homes are often inconsistent. These inconsistencies mostly reflect differences in methods of data collection, especially in how questions about the purpose of vacant or additional owned properties are asked, but also as a result of differences in sample sizes, sampling procedures, and weighting procedures across surveys.

The figures shown in the chart above suggest that second homeownership rates among homeowners peak in their 50s and 60s at about 6-6½ percent, and rates of time shares peak at about 5 percent, these may be undercounts. The reason is that when SCF respondents are asked what type of property they own, they must choose from “seasonal/vacation home,” “time share ownership,” and a host of structure types including single-family house, condominium, residential, trailer/mobile home, farm/ranch, etc. It is likely that some of those who own homes for occasional use on weekends or for work do not consider them for seasonal or vacation use. Indeed, many of those responding with a structure type do not derive any rental income from their second home, suggesting that in some cases they are at least in part for consumption uses.

With an even greater number of households headed by younger boomers growing into the 50-59 age group by 2015 than the number of households headed by leading edge boomers currently in that age, and each generation accumulating more household net wealth and higher median incomes than previous generation at similar age, demand for second homes are likely to continue to grow in the coming decade.

One hypothesis suggests that the likelihood of owning a second home will be increasing with permanent income, current income, wealth, and age. Higher incomes and wealth allow consumers to allocate more of the household budget to housing consumption and investment. Lifecycle factors suggest that even after controlling for income and wealth, second homeownership might be higher for older aged households as they approach or reach retirement and look towards more leisure time.

With most owners having second homes within driving distance of their primary residences, living in a lower cost area could increase the likelihood of owning a second home because the costs of buying a second home are lower.

In conclusion, the propensity models reported here are perhaps the first efforts to model the determinants of second home ownership. The findings suggest that especially the age of the household head but also the minority status of the household head and household income (both current and permanent), as well as household non-housing wealth are good predictors of second-home ownership.


Second-home Buyers Preferences

While buyers of vacation homes have always been primarily motivated by the desire to have a place to get away, there has been a slight shift in sentiment among recent buyers. Buyers who purchased their vacation homes after 2003 were more interested in diversifying their investments and somewhat more concerned about the tax benefits of vacation-home ownership. Below are some of the preferences that second-home owners have demonstrated according to the National Association of Realtors Profile of Second-Home Owners.

Location
Overall, most vacation-home owners want to be near an ocean, a river or a lake. The majority of vacation-home owners enjoy outdoor activities, with nearly 60 percent enjoying the lake, the beach, water sports or water-related activities.

Proximity
The median distance owners travel between their primary residence and vacation home is 220 miles. Second-home owners whose vacation home is located in the South travel the greatest distance (a median of 330 miles). Nearly half of owners live in the same state as their vacation home. Recent owners of vacation homes are more likely to purchase a home in a region different from where their primary residence is located.

Travel to Vacation Homes
Owners with homes located in the West and South are more likely to travel by airplane to their vacation home than owners in other regions, reflecting the greater distance between owner's primary residence and their vacation home. Owners in the South are also more likely to own an apartment or condo compared to owners with homes located in other regions.

Size
The typical vacation home is 1,480 sq. ft. in size. Homes in the South are the largest with a median of 1,520 sq. ft.

Value
The median Value of all vacation homes in the survey was $300,000.00. For 68 percent of vacation-home owners, their second home is valued at less than their primary residence. Seventy-one percent of all vacation homes are previously owned homes. Buyers of vacation homes in the South and West are more likely to purchase a new home than buyers elsewhere. Overall, recent vacation-home buyers are somewhat more likely to purchase a new home than buyers who purchased prior to 2003.

Rental Options
The typical owner spends 39 nights per year in their vacation home. Most vacation-home owners (75%) do not rent out their homes. Vacation-home owners purchase their property almost exclusively for their own personal use. Sixty-five percent of vacation-home owners say their investment is better than investing in the stock market.

By: Mike Stuart References: Joint Center for Housing Studies Harvard University The 2006 National Association of Realtors Profile of Second-Home Owners

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