Home Prices to Drop Further,
But Recovery May Be Ahead
By Amy Hoak
From MarketWatch
It's still too early to tell exactly when this housing slump is
going to end, with house prices just beginning to soften, mortgages at risk of
defaulting beginning to hit reset dates and lending standards that are starting
to tighten, according to researchers at the Harvard University's Joint Center
for Housing Studies.
One thing's for sure: Before the sun shines again on the housing
industry, a good amount of excess inventory will have to be sold, according to
the center's "State of the Nation's Housing" report, released Monday.
Employment growth will play a role as well in the recovery, as will interest
rates, the report said.
A look ahead
The report also points out the persistence of a wealth effect in
2006, which kept Americans borrowing more against their equity to support their
spending. The amount of home equity cashed out set a record last year, as the
volume of refinances dropped. The effect of the housing slowdown on consumer
and remodeling spending hasn't been seen yet, according to the study.
Look farther ahead, however, and the outlook for housing is
bullish.
For one, the baby boomers will continue to move into the age where
second-home ownership is at a high. Evidence of this demographic trend has
already been seen, with the sale of vacation homes hitting a record in 2006,
according to the National Association of Realtors. Read more. (report is below)
At the same time, children of the baby boomers will continue to
move into the ranks of homeownership, boosting housing demand.
In addition, immigration is expected to hit a record 12 million
between 2005 and 2015.
The upcoming growth in new households puts estimates for new-home
demand at about 19.5 million units from 2005 to 2014, surpassing the 18.1
million units added between 1995 and 2004, according to the report.
Second-home snapshot
Vacation-home sales are up, while
fewer are buying purely for investment
By
Amy
Hoak, MarketWatch
Last
Update:
CHICAGO
(MarketWatch) -- A sharp drop in investment-home
sales offset a record number of vacation-home purchases to bring down the
overall share of second-home purchases in 2006, the National Association of
Realtors reported Monday.
The
share of second-home sales was 36% of all existing and new residential real
estate transactions in 2006, down from 40% of all sales in 2005, the group
said.
Vacation-home
sales went up 4.7% to a record 1.07 million homes in 2006 from 1.02 million in
2005, driven largely by demographic trends. Meanwhile, investment-home sales
dropped 28.9%, falling to 1.65 million homes in 2006 from 2.32 million in 2005,
according to the group's annual survey of investment- and vacation-home buyers.
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The
share of vacation-homes rose, making up 14% of all home sales, up from 12% in
2005. Of all homes purchased last year, 22% were for investment, down from 28%
in 2005.
For
comparison, primary-residence sales fell 4.1% during the time; in 2006, there
were 4.82 million primary home sales, down from 5.02 million in 2005.
"We
expected the drop in investment sales because speculators left the market in
2006, which caused investment sales to fall much faster than the primary
market, but the rise in vacation-home sales is based on strong demographic and
lifestyle factors, with only modest interest in renting their properties to
others," David Lereah, the association's chief
economist, said in a news release.
The
median price of a vacation home was $200,000 in 2006, down 2.0% from $204,100
in 2005. Investment-home prices were also down, with the typical home costing
$150,000 last year, down 18.3% from $183,500 in 2005.
"The
drop in investment prices comes as no surprise, but for vacation-home prices to
edge down in a record market is a bit puzzling," Lereah
said. "It may result from a large dumping of inventory on the market by
speculators, especially in the condo sector, with long-term, second-home buyers
taking advantage of the glut and buying at negotiated discounts.
"Anecdotally,
part of the drop in the median investment price results from investors shifting
away from pricier markets like Florida, Nevada and Arizona, and into affordable
locations in New Mexico, Idaho, Utah, Georgia, Tennessee and the
Carolinas."
Of
second-home buyers, eight out of 10 thought it was a good time to invest in
real estate; 57% of primary-residence buyers thought the same.
Vacation
homes
Sales
of vacation homes benefit largely from the country's demographics, because
large numbers of consumers are in prime buying ages, Lereah
said.
The
profile of a typical vacation-home buyer in 2006 was someone 44 years old, with
a median household income of $102,200. Typically, these vacation homes were a
median of 215 miles from the owner's primary residence, though 42% of vacation
homes were closer than 100 miles and 32% were at least 500 miles away.
While
many of these vacation-home buyers are older than 50, those in their 40s may be
driving the market in the coming decade, Lereah has
noted.
According
to the report, 79% of vacation-home buyers wanted the property as a vacation or
family retreat, 34% wanted to use the property to diversify their investments,
28% planned to use it as a primary residence in the future, 25% were motivated
by the tax benefits, 22% intended for a family member or friend to use the
property, 21% said they bought because they had extra money to spend and 18%
plan on renting the property to others.
The
most popular location for the homes was in rural areas; 29% of the homes were
purchased in the country. But 24% were located in resorts, 22% in a suburb and
10% in an urban area or central city. Most of the homes were detached
single-family houses (67%), but 21% were condos and 8% were townhouses or rowhouses.
Investment
homes
Investment-home
buyers were younger and earned less than vacation-home buyers, with a median
age of 39 and a median income of $90,250. The home bought for investment was a
median 22 miles away from the owner's primary residence.
Forty-six
percent of buyers said they purchased the investment for rental income, 43%
bought to diversify investments, 23% wanted the tax benefits, 18% wanted to use
them for family vacations or a family retreat, 15% bought because they had
extra money to spend, 13% said that a family member or friend would live there
and 12% said that it would become a primary residence in the future.
Also,
unlike vacation homes, 37% of investment homes were in a suburb, 22% were in a
rural area, 18% were in an urban or central city and 7% were in a resort area.
While 63% were detached single-family homes, 26% were condos and 6% were
townhouses or rowhouses.
Those
buying for investment purposes also don't intend to hold onto the property as
long as vacation-home buyers do, according to the report. While vacation-home
buyers plan to keep their home for a median 10 years, investment buyers plan to
hold the homes for a median five years. Twelve percent of investment buyers
still plan on selling in one year or less. 