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Is It a Good Time to Buy a Second Home

Last update on: Nov 09 2017
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In our Feb. 2002 visit I advised, “If a second home interests you, now is a good time to take a serious looking at buying one.” Those who took my advice have done well. Vacation and second home prices were stagnant then because of the economic downturn but doubled in many areas between 2000 and 2005. Even now in most areas prices are not substantially below their peak values.

Now is another good time to consider buying a second home or vacation home if that is part of your long-term plan. This year and probably the next year or so should be the best second home buying period since 2002. In 2004 through early 2006, speculative buyers pushed up the prices of many second homes. Most of those buyers no longer are active buyers or are much more careful about their purchases. Many speculators have put their purchases back on the market, increasing inventory and pushing down prices.

Yet, the long-term trends favoring second and vacation homes still are in place.

One group of second home buyers is people over age 40 who are looking for a family getaway or vacation home. This group is growing rapidly and has purchasing power. The second group of buyers is the Baby Boomers. The first Boomers now are over 60. Many are looking for a second home in which to spend part of the year or that they hope will turn into their full time retirement homes. No matter what happens with the speculators, these two groups should provide a firm foundation for second and vacation homes for 10 years or longer.

Second home purchases typically account for about 30% of real estate sales, but they soared to 40% in recent years. If you looked into purchasing a second home the last few years, you saw the effects of the strong demand. Many homes in desirable areas sold for more than their asking prices. Sellers were able to demand terms such as a firm closing within 30 days with no home inspection. Buyers had to take whatever homes were available, even if the homes differed from what they really wanted.

Now, there is no rush to buy, and most buyers know it. Real estate developers report that their surveys show potential buyers are wary of the market, believing prices might decline substantially more. They plan to wait another year before making a purchase decision. If the surveys are accurate, the most likely scenario is that second home prices will be flat to down for the next year. About this time next year the inventories of homes for sale should be lower than today, and prices will be hitting bottom. Even then, I would be surprised if prices bounced back to annual gains of 20% or more. Most likely, appreciation will return to a more normal rate in line with inflation and population growth.

In choosing a second home, consider a place where you want to live or spend time. Most second homes are purchased in resort or recreation areas. Of course, there are the traditional areas of Florida, Las Vegas, and beach areas. Keep in mind, however, that the a significant portion of the Baby Boomers are showing interest in nontraditional second and vacation home areas. They are attracted to areas such as the Carolina mountains. College towns also are popular. Bargain-seekers should consider the areas that were most overbuilt in the recent boom, such as South Florida and Las Vegas.

About a third of second home buyers are investment-minded, seeking either appreciation or rental income. Before buying, carefully consider how you would use the home and how often. Though many people buy a second home thinking they could rent it if they do not use it enough, less than a quarter of second home buyers actually rent their homes. There is a lot of work and inconvenience involved in renting, not to mention wear and tear on the home. The possibility of renting should not be an afterthought or a fallback position.

You also should buy a second home that eventually can be sold by you or your family. That means buying in a place where people want to go and that has the amenities people want convenient to the home. It also is best to buy within a two hour drive of large numbers of people.

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