A lack of affordability and tight supply resulted in a significant decrease in vacation home sales in 2016, a report from the National Association of Realtors (NAR) shows.
The firm’s Investment and Vacation Home Buyers Survey shows that vacation home purchases last year reached an estimated 721,000, down 21.6% compared with about 920,000 in 2015.
It was the lowest number of vacation home sales since 2013.
Sales of vacation homes to individual investors increased 4.5%, the report shows. More of these investors took out a mortgage to buy these vacation properties. In addition, most were planning to use the property as a short-term rental.
Not only was it the second consecutive year that vacation home sales fell, but they have also fallen 36% from their recent peak in 2014.
Rising home prices are partly to blame for slowing vacation home sales. The median vacation home price in 2016 was $200,000, up 4.2% from $192,000 in 2015.
“In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale,” says Lawrence Yun, chief economist for NAR, in a statement. “With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.”
Yun adds that volatility in the financial markets in late 2015 through the early part of last year “also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the election.”
Tight inventory was also a major factor, Yun says.
The fact that more buyers had to borrow money to make their vacation home purchase is telling. In 2014, 41% of vacation home buyers paid with cash, whereas in 2015 it was 30% and in 2016 it was 28%, according to the report.
“Sales [of vacation homes] to individual investors reached their highest level since 2012, as investors took advantage of record low mortgage rates and recognized the sizeable demand for renting in their market as renters struggle to become homeowners,” Yun says. “The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase.”
Vacation sales accounted for 12% of all home sales in 2016, down from 16% in 2015.
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