Real Estate Market

Vacation home market heats up with renewed demand

by Broderick Perkins

(4/3/2012) - If you've ever considered purchasing a second home for fun, retirement or as a vacation rental investment, you might not get a better deal than you can get right now.

Join a real estate investment group and pool your money. Tap retirement money. Get a second job. Get a third job. Just do what it takes.

Rock bottom prices, record low interest rates, and a travel market growing faster than the economy at large combine to make it an opportune time to buy that second home or investment property, according to research commissioned by HomeAway, Inc. as part of the National Association of Realtor's (NAR) 2012 Investment and Vacation Home Buyers Survey.

"The purchase of vacation homes is moving back into the mainstream for a greater number of Americans who are attracted by low prices, rental income potential, and use as a retreat for busy families to get together every year," says Brian Sharples, chief executive officer of HomeAway.

"Although sales of vacation homes are not as high as historic levels, they are clearly showing signs of a sustained recovery," he added.

According to the NAR survey, 82 percent of buyers believe now is a good time to purchase real estate, and 39 percent say they are somewhat or very likely to buy vacation property within the next two years.

For many with a clue about the economy, buying a vacation home is a done deal. Aware the economy is emerging, especially in real estate, buyers pushed sales of vacation homes to a four-year high in 2011, the study reveals.

Why buy now?

The research found 33 percent of vacation home buyers purchased a vacation property last year primarily because of low real estate prices. The median sales prices for vacation properties was $121,300 in 2011, down 19 percent from 2010. For those renting out vacation homes, the lower prices make it easier to cover the cost of owning or even net a profit.

Other reasons for buying a fun house included use as family retreat, 30 percent; low mortgage rates, 13 percent; retirement, 11 percent; potential for price appreciation, 8 percent; other, 5 percent.

Travel trends are also a motivating factor, especially for investors. As investment properties, vacation rentals won't pencil without demand.

After 2009's dismal 8.8 percent drop in total travel expenditures in the U.S., the travel industry roared back with a 7.7 percent increase in expenditures in 2010; 7.5 percent in 2011 and another 3.2 percent is expected this year, according to the U.S. Travel Association.

International visitors are expected to lead the growth in expenditures with a 4.7 percent increase compared to a 3 percent growth in domestic travel expenditures.

Growth in the vacation rental market beats the current growth projections for theGross Domestic Product (GDP), which appears to be holding around 2 percent to 2.5 percent for the January-to-March period, according to the U.S. Bureau of Economic Analysis.

Going with the cash flow

This is good news the 91 percent of vacation home buyers who say they plan to rent their property within the next 12 months to either long-term or short-term renters or a combination of the two.

Of those buyers, 71 percent cited rental income potential as a factor in their purchase decision and nearly three-quarters (74.5 percent) of buyers believe they will make enough rental income to cover at least half of their mortgage.

Sharples says HomeAway research shows that 70 percent of those listing their vacation rentals on HomeAway's U.S. sites generate enough rental income to cover half or more of their mortgage, and 51 percent cover at least three-fourths of their mortgage.

Of those buyers intending to rent their property, about 40 percent plan to make their vacation homes available for rent between one and eight weeks over the course of the next year; 32 percent plan to rent their properties between nine and 26 weeks per year; and 27 percent plan to rent their homes between 27 and 52 weeks per year.

Vacation home buyers are willing to rent their property to more than one type of guest. The majority (70 percent) of people who plan to rent their property to short-term renters say they'll rent the home to vacationers, while 37 percent plan to rent to business travelers and 24 percent plan to rent to other tenants, such as college students or people relocating to the area.

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