Second home ownership

A few decades ago, only wealthy families owned more than one automobile. Today, owning just one car is a rarity. Over the thirty years, owning a second home may be as common as owning a second car. Already, 6.4 million homeowners (6%) own a second home and it is predictedwho that 10 million people will own a second home by 2010. A ‘second home’ refers to private ownership of a residence other than one’s primary residence. Depending on their purpose, second homes are sometimes called cottages, vacation homes, or secondary residences.

Demographics

Where as second homes were once only owned by the top of the upper class, they are now becoming more common among a more varied demographic. Baby Boomers are increasingly becoming an active part in today’s real estate market; they are the single largest group of homeowners. U.S. Census Bureau predicts second home purchases for boomers to reach 6.4 million units by 2010, up from 5.5 million units purchased in the 1990s. These buyers usually purchase along the Sunbelt because of the temperate climate. Although the majority of second home buyers are baby boomers, younger middle class buyers are also entering the second home market. Typically, these buyers purchase near secluded water shores and away from large cities. Ninety percent of the buyers are married, and then single men, single women, and unmarried couples.

Most second home owners have their primary residence in Wisconsin, Pennsylvania, Florida, New York, and California. On average, most spend 1 to 3 months in their second home, although there are some that spend as much as 6 months there.

Why are people buying second homes?

From an economic standpoint, many buyers (especially baby boomers) purchase a second home as an investment. Homes bought in popular tourist regions can be incredibly lucrative because of the willingness of tourists to pay high rent. Some seasonal travelers do not want to buy a permanent second residence. Instead, they rent a home where ever they travel to that year.

Most second homes, however, are purchased for personal reasons. In some cases owners use their second home as a sort of refuge to temporarily escape their urban environment. These city dwellers look to their second home near an ocean, in the countryside, or on a golf course for relaxation and ‘fresh air’. In these instances, owners are typically young professionals searching for nature’s beauty to refresh their spirit that has been worn down by the stresses of city life. These vacation homes often become the owner’s primary residence after retirement.

Many retirees whose primary residence is still in the northern United States use their secondary residence to escape the harsh winters. These people who migrate to warm weather during winter are often referred to as “snowbirds” because of the way they seem to ‘flock’ to the south. Winters in the southern states are very mild in comparison with those of the north, making a secondary residence in a Sunbelt state very appealing. Many snowbirds invest in a house within a golf course community. Here, they can continue to enjoy the country club lifestyle they live up north while still being able to play golf year round. Also, in some instances, the reverse effect takes place. In areas where summers are intense, residents migrate to northern states where summers are milder.

Advancements in technology also have some impact on why people are buying second homes. Electronic mail, global cellular phone connections, and improved telecommunication, allow employees (especially businessmen) to maintain contact with their employer while on vacation. In addition, home ownership, the core of the American Dream, has been encouraged by the federal government through tax exemptions and low interest rates. Steady low mortgage rates are now allowing more people to finance two homes.

Benefits

Personal level

Second homes are often purchased as investments. Investment home sales rose 14.4 percent to 1.80 million sales in 2004. Vacation home sales surged 19.8 percent to 1.02 million. Even with lower mortgage rates, financing two homes on one income can be difficult. Many times, owners of a second home rent out the home and use the rent payments to subsidize the mortgage payments. Once the mortgage is paid off, any rent becomes a liquid source of income. Occasionally, owners that rent their second home sell it to make a profit. More often though, owners sell their primary residence and move into their second home after retirement.

State and Local Levels

Property tax is collected by the state regardless of the amount of time spent in the house. Communities primarily filled with second home owners increase tax revenue for the state. While the resident is living in their second home, any money spent in that area benefits that state government. This extra income from sales tax may not be significant in areas with fewer second home residents but states like Florida, Arizona, and Texas generate a large amount of money from second home owners during season. As the number of buyers looking for a second home increases, more second home type communities are being needed. This demand stimulates local business involved in the building process. Real estate agencies, contractors, construction offices, furniture stores, and many other relative businesses will all increase their sales as a result of continued development. Also, during vacation seasons, population increases to these second home areas increases local economy activity.

Drawbacks

Economic liability

The influx of snowbirds during season places a demand on local and state governments to build local infrastructure, including water and sewer systems, medical services, and recreational facilities. While continued development can be viewed as a benefit, it is also costs governments millions of dollars. More money being spent on roads and infrastructure, for example, can possibly mean less money being spent on other public service projects or even education. Furthermore, when development demand is high, construction planning is somewhat rushed. This can lead to a disorganized traffic networks, power shortages, water shortages, and possible environmental problems. The Spanish Mediterranean, for instance, is dealing with a water shortage problem because of the extremely rapid residential growth and slow infrastructural growth.

Additionally, in many rural counties second homes bring a population growth, but not an economic growth. Here, homeowners typically spend money to buy basic utilities and supplies but do not contribute to the economy in any other way. More economic development is seen in coastal areas where land is more expensive, attracting wealthier residents willing and able to spend money.

Unstable Seasonal Economies

A seasonal economy refers to a local economy that flourishes during a seasonal, temporary population increase and weakens after the season ends. Southern Florida, for example, sees a dramatic increase in residents from the north during early December. These snowbirds usually return to their primary residence sometime during March. These few months are referred to as "season" because it is when local economies thrive. During the off-season, economies slow down and businesses cut their employees, sometimes up to 75%. This phenomenon does not usually take place in the areas of primary residence however. Snowbirds typically live in urban areas up north that are hardly affected by their temporary departure. The more rural and suburban areas they flock to during the winter are the areas that suffer most after they return home. Seasonal economies are, for the most part, service economy and when the wealthy, seasonal residents return home, unemployment rates become a problem.

International

Second home owning is not only an American phenomenon. More and more people in Europe own a second home, either in their country of residence or another country. Transportation has become more efficient and residents can reach their second home by train in only a few hours.

More often than in the United States, residents use their second home to escape hot summers, not cold winters. In countries like Spain, Portugal, Greece, and Italy where the summers are hot, some residents move to their second home in another part of Europe with a less intense summer. The United Kingdom has the least number of second homeowners. This can most likely be attributed to their temperate climate and expensive housing.

Second home communities are focusing on large estates with intertwining golf courses, especially in Southern Europe where golf can be played year round. Unlike in America where second homes are primarily in coastal and rural areas, second homes in Europe are usually near a large city. In Spain, for instance, the majority of second homes are near Madrid, not along the coast.

Alternatives

Timeshares have always been an alternative to owning a second home. Those looking for something larger than a timeshare often rent a home. But perhaps the best alternative to owning a second home is using someone else’s, for free. The newest phenomenon in the traveling industry is something called Hospitality Services. The housing industry offers something similar called "Holiday Home Exchange". You stay in someone’s house while they stay in yours. After creating a profile on the website, you are able to exchange homes with people across the world.

Fractional Ownership

One of the many fast growing forms of vacation property ownership is fractional ownership. Also know as Private Residence Clubs, fractional ownership is often misunderstood as another time-share opportunity.

Fractional ownership is an actual, deeded interest (usually 1/4 to 1/13): You can sell it, leave it in your will, put it in a trust, almost anything you could do with a normal deeded property you can do with a fractional ownership property.

ee also

*Starter home
*Pied-à-terre