Vacation Home Prices and Sales Plunged in 2008, says NAR. This is News?

Surely nobody following the economic crisis was surprised when the National Association of Realtors announced recently that second-home prices and sales fell in 2008.

The real question is: what now? Is there any good news that might pull sellers and real estate agent out of the mire?

In three words, I don't know... and I doubt anyone else does, either. There is anecdotal evidence that banks are beginning loosen up their purse strings a wee bit for primary homes. But vacation or second homes are being sold in large measure either for cash or with seller finanding, say experts.

The data from 2008 itself: bleak.

"The median price of a vacation home was $150,000 in 2008, down 23.1 %from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28 % below the 2007 median of $150,000," according to the NAR press release. The actual number of vacation homes purchased last year was down more than 30 %, while investment-home sales dropped more than 17 %.

The most important stat: "more than 4 out of 10 investment buyers and more than 3 in 10 vacation-home buyers paid cash for their properties. That's heartburn territory for sellers.

To Buy, Or Not To Buy A Vacation Home Now?

An article from CNBC now circulating suggests this is the time to buy the vacation home you've always wanted. Why? Prices down... inventory up... interest rates low.

Nevertheless, those I've spoken to urge caution.

It's still difficult to get a second-home mortgage (CNBC's reporter agrees). Buyers must be ready to come up with a good chunk of cash-- at least 25 % in most cases, say experts.

Long-term trends positive?

CNBC quotes Walter Molony, spokesman for the National Association of Realtors, as saying that the market is“fundamentally healthy,” with a median price in 2007 of $195,000. He argues that while middle-age, middle-income folks -- i.e. baby boomers, are the main buyers now, Gen X and Gen Y (younger people) will come into the market right after them and will "fuel" the demand.

But you need to ask yourself how quickly those 20-to-45 year olds will recover from the current economic crisis. The older ones among them typically would be in their prime earning years. Instead, many are collecting unemployment insurance and more are sure to be in the same hole soon.

As CNBC concludes, buy for enjoyment first and investment value later. And "first-hand knowledge of the market will also help you avoid buying into a community that’s on the outs."

National Association of Realtors Cheerleader Suffers from Burst Bubble Too

David Lereah feels your pain. Today's front page of the Wall Street Journal carries an article about the former chief economist for the National Association of Realtors who is working from home in Virginia these days, trying to pay mortgages on his personal residence and several investment properties with a newsletter he publishes costing $495 a year. He says he has 50 paying subscribers so far. Lereah was quoted here often about the rosy growth in second home investment values before the bubble burst.

More Second Home Owners Renting Out Properties

"About 25 percent of vacation-home buyers said last year that they planned to rent out the property, up from 18 percent in 2006, according to the National Association of Realtors," the AP reports.

"And real estate agents in vacation hot spots say that trend is continuing, because more owners are watching their retirement savings slump with the stock markets.

"People who have second homes have found the price of operating and maintaining their home have gone up" alongside the increased cost for everything else in their lives, the wire service quoted Justin Halloran, vice president of HomeAway.com as saying.

Median Vacation Home Price Under $200K

Thanks to "lifestyle factors and strong demographics" the "underlying demand" for the vacation homes is strong despite last year's market slide, says National Association of Realtors chief economist Lawrence Yun, who notes that “a peak of population is moving through the prime years for buying recreational property." Buyers may pay less now than before the housing bubble burst. The median price of a vacation home was $195,000 in 2007, down 2.5 % from $200,000 in 2006. Another trend: more condos, fewer single homes.

In 2007, 59 % of vacation homes sold were detached single-family homes, 29 % condos, 7 % townhouses or rowhouses, and 5 % other. In 2006, single family homes accounted for 67 % of vacation home sales, while condos were 21 %. (Photo of Club at Crystal Lake, Ft. Myers, FL courtesy Goin2travel.com)

NAR Spin on Second Home Sales Drop

In case you've been taking a very long siesta, you already know that second home sales -- like all other real estate transactions -- have fallen sharply in the past year. Below is how the National Association of Realtors spinned the details:

WASHINGTON, March 28, 2008 -
The combined total of vacation- and investment-home sales declined with the overall market in 2007, but still accounted for 33 percent of all existing- and new-home sales, which is close to historic norms, according to the National Association of Realtors®.

The market share of homes purchased for investment last year was 21 percent, down from 22 percent in 2006, while another 12 percent were vacation homes, compared with a 14 percent market share in 2006. The total share of second homes declined from 36 percent of transactions in 2006.

NAR’s annual Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.6 percent to 740,000 in 2007 from a record 1.07 million in 2006, while investment-home sales fell 18.1 percent to 1.35 million last year from 1.65 million in 2006. At the same time, primary residence sales declined 10.0 percent to 4.34 million in 2007 from 4.82 million in 2006.