Investors return to US property

Investors are returning to the USA’s property market, with investment purchases of real estate rising in 2015 for the first time in five years.

The National Association of Realtors’ annual report for 2016 found that holiday home sales dropped last year to an estimated 920,000, down 18.5 per cent from their most recent peak level of 1.13 million in 2014, although still at the second highest level in almost a decade.

Investment home sales, on the other hand, in 2015 jumped 7 per cent to an estimated 1.09 million (from 1.02 million in 2014).

Sales estimates are based on a national online survey, including responses from over 2,000 U.S. adults who purchased a residential property in 2015, and exclude institutional investment activity.

“Despite a smaller share of distressed properties coming onto the market, investment purchases reversed course in 2015 after declining for four straight years,” says Lawrence Yun, NAR chief economist. “Steadily increasing home prices and strong rental demand appear to be giving more individual investors assurance that purchasing real estate will diversify their portfolios and generate additional income if they decide to rent out the home.”

Vacation-home sales accounted for 16 percent of all transactions in 2015 — down from 2014 (21 percent), but still the second highest share since the survey was first conducted in 2003. The portion of investment sales remained unchanged from a year ago at 19 percent, and owner-occupied purchases increased to 65 percent (60 percent in 2014).

The median sales price of both vacation and investment homes soared in 2015. The median vacation home price was $192,000, up 28.0 percent from $150,000 in 2014. The median investment-home sales price was $143,500, up 15.3 percent from $124,500 a year ago.

According to Yun, many of the metro areas with the strongest price appreciation in 2015 were in the South — the most popular destination for vacation buyers – and particularly in several Florida markets. While increased buyer demand contributed to the run-up in prices, it also likely squeezed less affluent households looking to purchase vacation properties.

The survey also found that in addition to longer-term rentals, investors are most likely to attempt to and rent their properties for less than 30 days. Among investors, 42 per cent did or tried to rent their property in 2015 and plan to rent their property in 2016. 24 per cent of vacation buyers did or tried to rent their property in 2015 and plan to rent their property this year. Vacation buyers are more likely to use a property manager or social media to rent their property, while investors are more likely to use a traditional real estate agency.

“Baby boomers at or near retirement continue to propel the demand for second homes, although headwinds softened the overall volume of vacation sales last year,” adds Yun. “The expanding pool of buyers amidst a dwindling number of bargain-priced properties led to tighter supply and fewer sales and caused the price of vacation homes to rise. Furthermore, the turbulence that hit the financial markets the second half of the year likely seized some would-be buyers’ available cash.”