Daniel Calano, Prospectus, LLC

As a quick refresher, for those who’ve repressed the pain, the most recent peak of the real estate market happened in 2007–2008, followed by the Great Recession which is said to have bottomed in 2012. Since then, most real estate in most areas has climbed the long hill back to the peak, both in pricing and velocity of sales. In some areas around Boston and other “go to” metropolitan areas, pricing has soared past the peak up to 50%. Understandably, with primary housing struggling to come back, second home sales were at best stagnant. It was pretty difficult to envision buying a discretionary vacation home, probably near the water, when your primary residence was under water based on its debt. Fast forward to today. According to a recent survey from the National Association of Realtors, vacation home sales have risen 57.4% from 2013 levels, and the highest actual sales number since 2003. The NAR economists have attributed this second home growth to relevantly affluent households benefiting from the upside in the stock market, as well as growth in their primary home equity as those values have risen above debt levels.

Who are the buyers? Obviously they include the baby boomers demographic, as those are the oldest, retired or about to retire, with typically significant discretionary income. The last part could be debated as studies show that many lost significant amounts in the great recession and have less retirement income and longer lives than previously considered. Despite that, they are the largest population group with the most incentive to find second homes.

The reasons for their quest include a desire to provide a family retreat for children and grandchildren to get together in; the possibility of renting out for additional income; and the hope for a capital appreciation and sale when appropriate. In addition, boomers are known to be migrating out of the suburbs from larger houses into smaller more manageable urban condominiums or apartments. If successful, a move like this presumably provides surplus revenue and a simpler primary home, which allows for time to spend and funds to maintain a second home.

Other reports show that Millennials, an equally large generation, make up the bulk of recent home buyers overall, but when it comes to vacation homes, boomers have the market cornered. Oddly though, there is some evidence of a movement afoot where millennial first home buyers are alternatively buying a second home instead. The New York Times had a recent article presenting anecdotes of young New Yorkers who, priced out of the downtown markets, but still interested in home ownership for its tax and potential appreciation benefits, are buying a “second home” instead They use an example of a couple buying a New York lake property with three bedrooms and a pool for a few $100,000, which money otherwise would have bought them a one bedroom condominium in Brooklyn. A broker from the William Raveis real estate firm indicated that they are seeing this occurrence now more than ever because prices are historically high in the city. Facsimile in Boston? Perhaps suburbanites seeking city dwelling in Boston will opt for second homes first on Cape Cod.

In any case, the typical vacation homebuyer in 2014 had a median household income of over $94,000. More than the majority of buyers bought a single family home; another 27% bought a condominium; and the final 18% bought a row house. About 40% of vacation buyers purchased in a beach area; 19% purchased in the country; 17% purchased in the mountains, and the rest elsewhere. About 33% purchased for reasons of a family retreat; about 19% purchased with the idea of converting to primary home; and 13% purchased for investment, and the rest a combination.

Still, despite all the above, second home purchases are largely with discretionary income and financial circumstances will have to continue to improve to maintain this growth. In the end second home purchase is a preference decision, since it’s normally a trade-off with other housing options: urban home versus vacation property. Some like the city; some like the shore. Some are fortunate enough to have both. In any case, it seems that an upward trend in second homes has some legs.

Daniel Calano, CRE, is the managing partner and principal of Prospectus, LLC, Cambridge, Mass.