This May Be the Time to Buy a Vacation Home

TheStreet.com

NEW YORK (TheStreet) -- With the school year winding down, the vacation season is upon us. Wouldn't it be just swell if you owned the perfect beach or mountain getaway? It would sure beat renting year after year.

Indeed, this may be a good time to buy. By most accounts, vacation homes are still selling well below their peak prices of the past decade, and many potential buyers are feeling more prosperous. Still, a vacation home is not for everyone.

Vacation home sales jumped nearly 30% last year, to 717,000 units, according to the National Association of Realtors. That outstripped the growth in sales of owner-occupied homes, which were up by 13.1%, to 3.7 million. Sales of vacation properties were nonetheless only about two-thirds of the peak in 2006. There are about 8 million vacation homes.

A key factor in growing sales, the NAR said, was the huge rise in the stock market, which last year piled a 32% gain on top of healthy returns in previous years. Vacation homes, as one would expect, tend to be bought by the well-heeled, and those folks invest in the stock market.

Last year the median vacation home price rose 12.5%, to $168,700. About 38% of vacation home purchases were all-cash deals, and big down payments -- a median of 30% -- were the rule for those involving a mortgage. Distressed sales accounted for 42% of vacation home transactions. That means homes in foreclosure, owned by the lender or in mortgage-payment delinquency.

"The typical vacation-home buyer was 43 years old, had a median household income of $85,600 and purchased a property that was a median distance of 180 miles from his or her primary residence," the NAR reported.

Data isn't in for this season, but conditions are about the same. Mortgage rates remain pretty low, prices are still below peak levels, the stock market is doing well and the economy is pretty stable if not going gangbusters.

So what does all this tell us?

First, it shows that buying a vacation home is really for people who have plenty of money. Because lending standards are tight, you need a big down payment or the ability to pay cash. Getting a loan for a second home could be very difficult if you have a big mortgage on your primary residence.

Most important, the large number of distressed sales in the vacation home market underscores how volatile this market is. Because no one has to have a vacation home, buyers suddenly disappear in an economic downturn. A bad economy also undermines the rental income many second-home owners count on to help cover costs.

Many buyers, of course, figure they can sell if they get bored with the home, find it's too big a hassle or the ongoing costs are too high. But that big distressed-sale number shows the easy exit is not guaranteed. A vacation property make sense only if you're confident you can enjoy and afford the home for a the long term.

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