since 1/01/2007
LA Weight Loss

Vacation Homes: Is Now the Time to Buy?

Interest rates are at rock bottom. Housing affordability is at a record high and the glut of available properties on the market has left buyers holding all the cards.

If your long-term financial plan includes the purchase of a second home, or vacation property, now may be the time to make your move.

“There are an abundance of properties available right now with sellers making concessions that they generally aren’t going to make in a rising market,” says James Boykin, author of “Investing in a Vacation Home for Pleasure and Profit” and a retired professor of real estate analysis at Virginia Commonwealth University.

Despite the incentives to buy, however, the mortgage crisis that crippled the market over the last three years has made it harder to qualify for loans—particularly true if you’re purchasing a second home. And with property values continuing to fall, homeowners who once relied on the equity in their primary residence to finance the purchase of a cabin or beachfront retreat are no longer able to tap those funds. As such, if you’re looking to expand your real estate portfolio in today’s market, be prepared to bring more cash to the closing table and perform greater due diligence to ensure the property you do select meets your personal and long-term investment needs. “Real estate is a very good alternative to stocks and perhaps other investments at this time, but it needs to be right for you personally as well as right for your portfolio,” says Boykin.

Here’s a look at how the second home market stacks up, what to look for when selecting a property and what it takes to land a loan.

Future Demand

According to Walter Molony, spokesman for the National Association of Realtors, the second home market is “fundamentally healthy,” despite short-term ups and downs.
Indeed, the number of vacation homes sold fell 30 percent to 740,000 in 2007, from a record 1.07 million in 2006, according to NAR. The median price was $195,000 in 2007, down 2.5 percent over the prior year.

While the results have yet to be tallied for 2008, Molony notes demographics bode well for that segment over the next decade.“The long-term underlying demand is favorable for vacation homes because of the large number of middle-age, middle income Americans [who are the primary buyers of such properties],” says Molony. “In recent years, this market has been driven by the baby boomers, but there are two even larger population groups coming up right behind them. Those younger segments will continue to fuel this market for the next 10 years.”

•
At the same time, NAR reports the housing affordability index rose 13.6 percent in January to 166.8, the highest since tracking began in 1970.The January index, the most recent month for which data are available, indicates a median-income family, earning $59,800 could afford a home costing $283,400 in January with a 20 percent down payment, assuming 25 percent of gross income is devoted to mortgage principal and interest. A year ago, the same family could afford a home costing $263,300. “If you have the resources and are confident about your economic future, you’re not going to find a better market than we’ve got today in terms of affordability and raw buying power,” says Molony. “It doesn’t get much better than this.”
Who’s Buying?

Those who buy vacation homes overwhelmingly do so for personal enjoyment, rather than investment potential.
A 2009 NAR study finds 84 percent of vacation homebuyers were most interested in owning a family retreat, while 25 percent bought with the intent to rent to others and 26 percent are looking to help diversify their investment portfolio.

A smaller percentage – 30 percent – expect to use their vacation home as their principal residence in the future.

Regardless of your intent for a vacation property, however, Boykin notes it’s important to buy with resale value in mind.Look for views, proximity to amenities and established resort communities, he says, especially if you hope to rent it out part-time.It’s also best to stay within driving distance of your primary home, enabling you to enjoy your vacation retreat more often and pop in to address problems as they arise. First-hand knowledge of the market will also help you avoid buying into a community that’s on the outs.

 

Sean Fields / Therese Holland licensed real estate agents in state of MA