Vacation Home Sales Soar to Record High in 2014, Investment Purchases Fall or
Homes Sold to Owner-Occupants Drops to New Low in First Quarter, Smaller Investors Picking Up Slack
Time for a quiz. Which headline do YOU think is right? The first, the second, both or neither?
The right answer is that you should never believe a real estate headline until you do your homework. In this case, two reputable organizations released data on the same topic, but one made an assumption that probably was wrong and skewed the results.
The first headline came from the National Association of Realtors’ 2015 Investment and Vacation Home Buyers Survey which reported that vacation-home sales catapulted to an estimated 1.13 million last year, the highest amount since NAR began the survey in 2003. Vacation sales were up 57.4 percent from 717,000 in 2013.
The second headline was from a RealtyTracs study released today, which found that in the first quarter of this year, Investment-home sales in 2014 decreased 7.4 percent to an estimated 1.02 million in 2014 from 1.10 million in 2013. Non owner-occupant buyers — any buyer who purchased a property but has their property tax bill mailed somewhere else — reached a new high of 36.8 percent in the first quarter of 2015.
How could two reports on the same major issues be polar opposites? True, one covers all of 2014 and the other the first quarter of 2015 but the vacation and investment markets could not have changed so dramatically overnight.
As they say, the devil is in the details. In its calculations, RealtyTrac counted as investors everyone who bought a vacation home last year and has its property tax bill sent to their primary residence. NAR’s report was based on a survey of all buyers. Vacation home buyers fit this definition: Vacation homes are recreational property purchased primarily for the buyer’s (or their family’s) personal use, while investment homes are residential property purchased primarily to rent to others, or to hold for other financial or investment purposes.
These definitions beg the question. Where do you draw the distinction between vacation and investment properties? Isn’t investment value a critically important factor to the vast majority of second home buyers? Don’t investment owners use their second homes themselves?
The answer to the last question is a resounding no if the buyer is using a tax sheltered retirement fund like a Sep IRA to buy the property, and many are today. These must be passive investments where owners have no role at all—not even to cut the grass—if they want to avoid a big tax bill.
What about other owners who didn’t use tax deferred money but rent out their vacation home when they are not living there to pay some or all of the cost?
If there are 100,000 people like that then the numbers in the NAR and RealtyTrac studies aren’t so far apart. That would make the NAR headline closer to the truth.
Vacation sales were up 57.4 percent from 717,000 in 2013.
Investment-home sales in 2014 decreased 7.4 percent to an estimated 1.02 million in 2014 from 1.10 million in 2013. Owner-occupied purchases fel