Data released today from the National Association of Realtors reveals the shifting nature of the real estate market. The number of homes purchased as investment property fell sharply, down 28.9% to 1.65 million last year, from a record 2.32 million in 2005. Sales of homes as primary residence fell only 4.1% to 4.82 million.
Although investors seems to be taking a break, sales of second homes as vacation properties remained strong. Vacation-home sales rose 4.7% to a record 1.07 million in 2006. The average buyer of a vacation home is slightly older and wealthier than the investor. The median age of the vacation home buyer was 44 years old, with a median household income of $102,200. The typical investment-home buyer was 39 and earned an income of $90,250. The median price of a vacation home in 2006 was $200,000, down 2% from 2005. The typical investment property cost $150,000 last year, down 18.3% from the year before.
“The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling,” said David Lereah, chief economist for the Realtors. “It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts. This underscores that housing should always be viewed as a long-term investment, providing solid returns over time.”
Lereah himself is moving on. The chief spokesperson for the association during the housing boom announced today that he had joined an unspecified new start-up business within Move Inc., the online real estate company that operates Realtor.com, the official site of the Realtors association. No doubt he’ll be looking for a new home in suburban Los Angeles too.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.