Why Second Home Sales Are Surging
In Washington there’s talk of eliminating or reforming the mortgage interest deduction for second homes.
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By Diana Olick,
CNBC
April 3, 2014

As temperatures in much of the country finally rise above freezing, thoughts are turning to summer, to summer vacations and of course to vacation homes. The housing crash hit the vacation home market hard, but 2013 actually saw a sizeable recovery in the sector.

"Growth in the equity markets has greatly benefited high-net-worth households, thereby providing the wherewithal and confidence to purchase recreational property," said Lawrence Yun, chief economist for theNational Association of Realtors.

Vacation home sales jumped nearly 30 percent in 2013 from 2012, according to the Realtors. They accounted for 13 percent of all transactions, their highest market share since 2006, although still about one-third below that peak. The increased activity pushed prices higher by 12.5 percent from the previous year.

"Sales are well underway, but I think people were put off by the cold weather," said Gary DePersia, a real estate agent in East Hampton, N.Y. "Now that all that is over, they're going to be out here thinking about the summer."

Vacation homebuyers are not only in the market for pleasure but for financial return. Five percent of buyers last year have already resold their properties, and 9 percent plan to sell within a year, according to the Realtors. Twenty-eight percent said they purchased to diversify investments.

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Many vacation homebuyers are also seeking rental returns, and so far this year they are doing well. Fifty-two percent of vacation rental owners are already booked for at least half the summer season, according to a new report from HomeAway, a vacation rental website.

"The demand we saw was pretty consistent, if anything it was more aggressive because there were people sitting at home in bad weather thinking about summer vacation," said Jon Gray, senior vice president of HomeAway, Americas.

The new demand for summer comes off a strong winter season, where vacation rentals averaged 70 percent occupancy, compared with about 60 percent hotel occupancy. Eighty-four percent of owners report this year's bookings are either the same or better than last year. Twenty-one percent have raised their rental rates.

A new trend in the industry is younger buyers. The typical vacation homebuyer was just 43 years old last year, according to the Realtors. Gray said that is part of the new rent-to-retirement trend. Buyers are taking advantage of lower prices and mortgage rates, purchasing homes they can rent now and retire into later.

"The reason we think that bodes really well for us from a rental perspective is because 90 percent say they're going to rent the homes in the first years. In the recent past vacation sales didn't necessarily correspond to rentals," added Gray.

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Destinations with the largest rent hikes in the first quarter of this year were Dauphin Island, Ala., Moab Utah and Cape San Blas, Fla., according to HomeAway. Areas with the biggest increase in traveler demand included Mexico Beach, Fla., Point Pleasant, N.J. and Manteo, N.C. (the Outer Banks). The summer season, however, generally moves demand east.

"The buzz on the Hamptons is very strong. I've had listings sell within a couple of weeks," said East Hamptons real estate agent DePersia. "I have properties that have been on the market for two years suddenly sell, all of a sudden the market is hot."

This piece originally appeared at CNBC. Read more from CNBC:

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