Second Homes' Demand Increases

[Jul 5, 2007.]

 

Rising mortgage rates, waning interest in subprime mortgages, and bigger-than-needed inventories have combined to give rise to disappointing news on the housing front. However, there is one sector of the housing market that appears to be doing well—the secondary home market.

Once upon a time, second homes were the exclusive property of the rich. However, more and more, middle-income people are considering second homes. The phenomenon appears to be most pronounced among baby boomers who are preparing second homes for their retirement.

Thornburg Mortgage President Joseph H. Badal was recently quoted in a published report as saying, "The demand for second homes is big and growing. Baby boomers are feeding the second home buying now, and young families are also in the market."

However, Badal recommends caution in purchasing a second home, since it requires a significant financial commitment. Badal says that, after the sale, many individuals find that the cost of the second home outpaces the benefits. The family may not use the alternative home as much as they had anticipated, meaning that the mortgage, insurance, and tax costs represent an unnecessary and expensive expenditure.

While the overall housing market has been sluggish because of a rise in mortgage rates, the secondary home market remains brisk, according to information obtained from the National Association of Realtors.

Sales of vacation homes increased nearly five percent to a record 1.07 million in 2005. The average buyer is 44 years old, has a median income of $102,000, and bought a home that was more than 200 miles from his or her main home. The vast majority of the homebuyers—close to 80 percent—were looking for a vacation home, while 30 percent thought the second home might become their main home in the years ahead.

Experts say those considering buying a second home should determine whether they want to locate in a traditional retirement area, or find a second home that would be nearer to their relatives. It's also important that second homebuyers feel comfortable with their purchases—otherwise, those second mortgages may be a little too much to take.

Julie Ann Amos
July 5th 2007
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