Second-Home Sales Accounted For One-Third of Transactions in 2007

The Following article is gleaned from "Second-Home Sales Accounted For One-Third of Transactions in 2007" by Walter Molony from Realtor.org

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.
Lawrence Yun, NAR chief economist, said the findings suggest different cycles for each of the sectors over the past two years. “Investment-home sales declined sharply in 2006 as speculators disappeared, leaving the market to serious buyers, with the pattern continuing in 2007,” he said. “Vacation-home sales rose to a new record in 2006 because there was a pent-up demand from buyers who couldn’t find a property as a result of tight supplies in preceding years.”
The overall sales decline in 2007 resulted from a combination of factors. “Certainly, second homes are discretionary purchases and there is a natural tendency to pull back from big-ticket items in periods of uncertainty,” Yun said. “The other factor is the disruption in the mortgage market, with a significant tightening of credit during the second half of 2007. Some buyers simply adopted a wait-and-see attitude.”
Yun said lifestyle factors and strong demographics remain positive for the vacation home market. “Investment considerations are secondary for vacation-home buyers, so there is some dormant underlying demand,” he said. “A peak of population is moving through the prime years for buying recreational property. It is welcoming to see investment sales returning to pre-boom sales activity.”
There were no significant changes in investment housing types. Sixty-one percent of investment homes purchased in 2007 were detached single-family homes, 20 percent condos, 11 percent townhouses or rowhouses, and 8 percent other. Twenty-eight percent of vacation-home buyers paid cash for their property, as did 35 percent of investment buyers.
Sixty-five percent of vacation home buyers and 71 percent of investment home buyers purchased existing homes, while the remainder purchased new homes.
The typical vacation-home buyer in 2007 was 46 years old, had a median household income of $99,100, and purchased a property that was a median of 287 miles from their primary residence.
In listing the reasons for purchasing a vacation home, 84 percent of buyers wanted to use the home for vacation or as a family retreat; 30 percent to use as a primary residence in the future; 26 percent to diversify investments; 25 percent to rent to others; 16 percent for the tax benefits; 14 percent for use by a family member, friend or relative; and 6 percent because they had extra money to spend.
Last year, 19 percent of vacation homes were purchased in the Northeast, 16 percent in the Midwest, 41 percent in the South and 24 percent in the West. In terms of location, 30 percent of vacation homes were purchased in rural areas, 20 percent in resorts, 20 percent in a suburb and 14 percent in an urban area or central city.
When asked about the most important reasons for their purchase of an investment home, 51 percent said to provide rental income; 39 percent to diversify investments; 21 percent to use for vacations or as a family retreat; 16 percent for use by a family member, friend or relative; 11 percent for tax benefits; 10 percent to use as a primary residence in the future; and 4 percent because they had extra money to spend.

Bush: More Help on Way for Home Owners

The Bush administration released over the weekend a sweeping proposal to revise regulation of financial markets.The proposal, which will be outlined in detail April 1, will merge or eliminate some long-standing institutions like the Securities and Exchange Commission, and streamline others. The Federal Reserve would get a new role as the super cop in charge of financial-system stability. Some proposals are expected to directly address the current mortgage-risk problems. Treasury Secretary Henry Paulson, who authored the plan, says it wouldn't necessarily prevent future financial crises."I don't think any regulatory system is going to change that," Paulson says. "I think we rely very, very heavily on market discipline. Having said that, I still think we need a system that is more efficient and gives us a better chance, gives us more tools to try to solve problems."Rep. Barney Frank of Massachusetts, the Democrat who chairs the House Financial Services committee, says he found the plan encouraging. But he says that for the rest of this year, lawmakers need to devote all their energy to stabilizing the mortgage-market turmoil rather than determining broader fixes. "It's too close to an election and it's a very major thing," he says.

Source: The Wall Street Journal, Damian Paletta, Greg Ip and Michael M. Phillips (03/31/08)

Foreclosure 'crisis' is overblown

The following article is gleaned from "foreclosure 'crisis' is overblown" by Scot Burns of MSN Money.

Sure there are pockets of pain around the US, but it's not as if most Americans are losing their homes. More than 99% of homes aren't in foreclosure.
A recent list of year-end mortgage foreclosure rates in 100 top metropolitan areas drew a lot of attention. Released by Realtytrac, a company that compiles date on home foreclosures, the list showed the number of foreclosure filings in each metro are, the percentage of home being foreclosed and the percentage change from the previous year.
Though the report had some dismal news-- such as the nearly 4.9% foreclosure rate in Stockton, Calif., area-- a close look at the data also provides some reassuring information. The foreclosure crisis is a regional problem, not a systemic one.
Though the national rate of foreclosure increased by a whopping 79% between December 2006 and December 2007, the rate was still only 1.033%. Because about 30% of all homes are owned mortgage free, this means that for all the noise about a crisis, only seven-tenths of 1% of all homes were in foreclosure.
In the top 100 housing markets, the average foreclosure rate was somewhat higher -- 1.38%-- and it was up 78% over the previous year. But if you rank-ordered the list of the top 100 areas, only 34 had foreclosure rates above the group average. Fifty-one areas had rates of 1% or less. Foreclosure rates actually fell in 14 of the 100 areas.
Owning your own home is an idea so popular that it's known as the American dream. But as prices fall and foreclosures rise, for many its become a nightmare instead.
The real economic problem, for most people, isn't the price-spike states. It's the deflation states.