Buyers snatched up houses as investment properties and second homes at an especially fast clip last year. The number of homes purchased for investment purposes rose a whopping 65% in 2011, from 749,000 to 1.23 million properties—which was more than one-fourth of all homes sold last year.
For the most part, the real estate market isn’t pretty, and hasn’t been in quite some time. Housing prices have fallen to 2003 levels, and recent signs indicate it’s unlikely that a full recovery will arrive before 2015.
If there’s one bright spot in the market, it’s the sharp rise in investors realizing that, what with prices so low, it’s a terrific time to buy. The most recent report from the National Association of Realtors indicates that vacation home sales rose by 7% last year, while investment-home sales soared by 65%.
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An unusually high percentage of both groups (49% of investment buyers, 42% of those purchasing vacation homes) paid cash for their homes, indicating that the buyers tended to be fairly well off and sellers often wanted to unload their properties in quick-and-painless fashion, with no mortgages or banks involved:
NAR Chief Economist Lawrence Yun said investors with cash took advantage of market conditions in 2011. “During the past year investors have been swooping into the market to take advantage of bargain home prices,” he said. “Rising rental income easily beat cash sitting in banks as an added inducement. In addition, 41 percent of investment buyers purchased more than one property.”
While investment home sales grew from 17% of the market in 2010 to 27% last year, 2011 was a slow year for traditional sales in which the purchaser planned on using the home as a primary residence. At 2.78 million sales, such transactions still represented the majority of home purchases—61%—but in 2010, 73% of home purchases were of the owner-occupied variety.
One reason that investors are jumping on homes is that rents have soared in the U.S. A recent study showed that buying is cheaper than renting in 98 out of 100 top markets. So why aren’t more people buying? Well, another study showed that the incomes of most renters has fallen, even as rents have climbed.
It’s only those who are positioned well financially—folks with good credit who qualify for mortgages, or who can just pay cash—who have been able to snag homes at phenomenally cheap prices of late. Most renters don’t fall into either of those categories, and so they’re still stuck renting.
The Wall Street Journal noted that while the uptick in investor home purchases “could help to stabilize prices, they also are creating problems for some buyers”:
Real-estate agents say investors, and to a smaller extent vacation-home buyers, are outmaneuvering traditional buyers, who are less likely to have the financial means to pay cash for a home and may not devote as much time to searching for properties.
While it’s been a good time to buy a home as an investment or a vacation property, it also seems to be an opportune moment to buy a home that is both—a vacation property that can be rented out, at least occasionally.
In a recent TripAdvisor survey, 46% of Americans said they are planning to stay in a vacation rental property this year, up from 40% in 2011. Sites that facilitate direct-from-owner rentals such as Home Exchange and AirBnB have experienced unparalleled growth in recent years: The latter, for instance, recently booked its five millionth night, up from just 1 million a year ago.