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Second Homes Sales Coming Back From Holiday

Vacation home sales are coming back, but investment properties are still on holiday, says the National Association of REALTORS® (NAR.)

Vacation homes and investment homes differ from the NAR’s studies of sales trends for primary residences, which are owner-occupied as a homestead. Vacation homes and investment properties are not own-occupied, except perhaps briefly, but are not counted as homesteads for tax purposes. 

One of the challenges of tracking housing sales trends is that sometimes the intended purpose of a home isn’t always clear. For example, a family may purchase a “vacation” home, but rent it out to others when not in use. In that case is it a vacation home or an investment? For that reason, the NAR provides an annual survey of existing and new home buyers for the answer.
Vacation homes are second home retreats that are used by the owner.

They can be rented out, but the purpose is to provide a vacation destination for the owner, family and friends. An investment home is one that is intended to be rented out to others full-time.

Because of the tighter credit standards in place since 2007, vacation and investment property purchases have declined, which also had a negative impact on primary home purchases. NAR’s 2010 Investment and Vacation Home Buyers Survey shows that vacation-home sales rose 7.9 percent to 553,000 last year from 513,000 in 2008. Investment purchases fell 15.9 percent to 940,000 in 2009 from 1.12 million in 2008. 

To put the numbers into perspective, primary home purchases rose 7.1 percent to 4.04 million in 2009 from 3.77 million in 2008. 

NAR’s analysis of U.S. Census Bureau data shows there are 7.9 million vacation homes and 41.1 million investment units in the U.S., compared with 75.0 million owner-occupied homes.
According to the survey, nine out of ten vacation home buyers say they plan to use their new property as a retreat, while one in four vacation-home buyers plan to rent their property to others.

Six out of 10 investors are planning to rent to others. One in five investors plans to allow a family member or friend to use the home, and the same number plan to use the home occasionally for vacation or personal use.

What’s interesting is how second-home buyers plan to use their homes in the long-term. Twenty-six percent of vacation-home buyers and eight percent of investment buyers intend to use the property as a primary residence sometime in the future.

At the peak of the recent housing boom, vacation home buyers and investors were nearly 40% of the buying market. Since the market correction, the market share of homes purchased for investment was 17 percent in 2009, down from 21 percent in 2008, while the vacation-home share rose a percentage point to 10 percent. 

The total share of second homes declined from 30 percent of sales in 2008 to 27 percent last year. 

The median price of a vacation home was $169,000 in 2009, compared with $150,000 in 2008. Half of vacation homes purchased last year were in the South, 21 percent in the West, 17 percent in the Midwest and 12 percent in the Northeast.  Seven out of 10 were detached single-family homes, says the NAR.
The median investment property sold for $105,000 last year, down 2.8 percent from $108,000 in 2008.  The distribution of investment sales, notes the NAR, was fairly close to the distribution of population:  35 percent in the South, 25 percent in the West, 24 percent in the Midwest and 16 percent in the Northeast. 

With credit a problem for some buyers, cash sales were more important. Three out of 10 vacation-home buyers in 2009 paid cash for their properties, while half of investment buyers paid cash.

The NAR says the outlook for second-home sales remains bright despite tight credit conditions, because of the large numbers of people at the right age and income to buy. 

“Historically, people become interested in buying a second home in their mid 40s,” explains Lawrence Yun, chief economist for NAR. “The large number of people who are now in their 30s and 40s will dominate the second-home market in the coming decade with a strong underlying demand, although sales in a given year will vary depending on the economy.”

The U.S. Census finds that 40.1 million people in the U.S. are age 50-59, the age range that “dominated sales in the first part of the past decade and established records for second-home sales,” says Yun. “An additional 44.4 million people are now in the primary buying demographic of 40-49 years old, and another 40.6 million are 30-39.

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