Lereah Comments on NARs 2006 Housing Snapshot

From MarketWatch: "A sharp drop in investment-home sales offset a record number of vacation-home purchases to bring down the overall share of second-home purchases in 2006, the National Association of Realtors reported Monday."

"The share of second-home sales was 36% of all existing and new residential real estate transactions in 2006, down from 40% of all sales in 2005, the group said."

"Vacation-home sales went up 4.7% to a record 1.07 million homes in 2006 from 1.02 million in 2005, driven largely by demographic trends. Meanwhile, investment-home sales dropped 28.9%, falling to 1.65 million homes in 2006 from 2.32 million in 2005, according to the group's annual survey of investment- and vacation-home buyers."

"The share of vacation-homes rose, making up 14% of all home sales, up from 12% in 2005. Of all homes purchased last year, 22% were for investment, down from 28% in 2005. For comparison, primary-residence sales fell 4.1% during the time; in 2006, there were 4.82 million primary home sales, down from 5.02 million in 2005." Commenting on the report Mr. Lereah stated that:

"We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market, but the rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties to others"

"The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling," Lereah said. "It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts."

"Anecdotally, part of the drop in the median investment price results from investors shifting away from pricier markets like Florida, Nevada and Arizona, and into affordable locations in New Mexico, Idaho, Utah, Georgia, Tennessee and the Carolina."

Mr. Lereah, how are your investment properties doing?