Why vacation home sales saw a 16.4% increase amid the pandemic

Lawrence Yun, National Association of Realtors® Chief Economist, joins Yahoo Finance to break down the boom in vacation home sales as a result of the pandemic in NAR’s latest report.

Video transcript

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ALEXIS CHRISTOFOUROS: Welcome back. Vacation homes continue to be a hot commodity, as the pandemic creates more opportunities for people to work from home. A new report from the National Association of Realtors shows that sales of vacation homes rose more than 16% last year, outstripping sales of existing homes by more than three-fold.

Joining us now to talk about it is Lawrence Yun. He is chief economist at the NAR. Lawrence, good to have you here. So now that we have more companies calling back people into the office, are you seeing any signs that this trend of buying second homes or vacation homes is starting to slow down?

LAWRENCE YUN: Good afternoon. Well, certainly, the real estate market got tremendous amount of interest last year. That's still going on in 2021. But the interesting dynamic is that people with that flexibility to work from home, there were essentially saying, work from home can also mean work from a vacation home, while also having spectacular views of the water or the mountain. And consequently, we have seen a surge.

Now, whether or not this will slow down, it remains to be seen. But based on what we are hearing from the resort areas, the demand still remains very strong.

KRISTIN MYERS: Lawrence, I was a little bit surprised by some of the areas where we're finding people purchasing vacation homes. For example, in places like Florida, I would have thought everyone would have been buying homes in Miami. And they're not, including even some other counties like Alcona County in Michigan, excuse me. I was going to say Maryland for some reason.

So I was a little bit interested by some of the areas that folks are buying. Is there any reason these areas have become hot spots? Is it the price? Is it something about these towns or these cities?

LAWRENCE YUN: Well, some location where Americans would view it as essentially a luxurious second home market, like in Southwest Florida, Marco Island, Naples, very expensive. Cape Cod, Martha's Vineyard similar. But what we are also seeing is some cottages, say, in the lake region, upper Michigan, Minnesota, as well as the Smoky Mountain region North of Atlanta or one can say right on the connection between North Carolina, Georgia, Tennessee, very hot spot.

People just want to say, well, let's just get away from the city, reasonable driving distance. So quite an amazing trend.

ALEXIS CHRISTOFOUROS: Lawrence, what about prices? Median prices for these vacation homes, are they rising more quickly than home prices for existing homes? Because we saw that prices in general are still near record highs.

LAWRENCE YUN: Home prices are at record high and still rising. The overall home prices increased 10% last year. Vacation home prices increased 14%. Now, people hear about the prevalence of the multiple offers. For a vacation home property, there is more inventory. So it is a less-rushed decision. People can take their time about which vacation home fits into their lifestyle. So there's less multiple offers. Nonetheless, what people are offering and what the sellers are willing to accept is showing a better price appreciation than for primary homes.

KRISTIN MYERS: About that point, because I think throughout the pandemic, so many folks turned to their vacation home and actually were using it as their primary dwelling, especially a lot of folks that live in New York City, for example, were escaping to their vacation homes. Are these vacation homes, being used for that purpose, just seasonal use? Or are you seeing some folks buying these vacation homes and intending to use them as some sort of primary residence, especially as we move into this hybrid, work-from-home experience moving forward?

LAWRENCE YUN: Before the pandemic, only 5% of the US workforce were working from home. During the lockdown period, the number reached close 1/3. Essentially all office workers were working from home.

Now, hybrid is likely to be the case. The exact model, is it coming to office two days a week or two weeks a month with the other two weeks work-from-home? We don't know for sure how everything will play out. Many of the top management will do some trial and error. But certainly, there will be more days working not in office.

And their family members, their uncles, brothers, and so forth. So by having a vacation home, they are essentially trying to get into a second primary residence. And the other weeks, maybe they just let their other family members use it who also have that flexible schedule. And consequently, the demand for a vacation home in great destinations, there is a strong demand.

ALEXIS CHRISTOFOUROS: Lawrence, what about inventory? We know it's so tight right now, especially for primary homes. There was a report the other day showing that we're short by about 5 and 1/2 million units just to keep up with demand. So that's tremendous pressure on home builders. What's inventory like right now for these vacation homes?

LAWRENCE YUN: The vacation home market has also seen a shrinkage of inventory, as buyers were gobbling up the properties. But the days on the market is lengthier, meaning that people do not have to make a rushed decision.

Before the pandemic, the trend in America was the metro market employment was rising, while rural areas were seeing a decline in overall population as well as the employment condition. But everything just flips upside down with the pandemic. Now we are seeing people moving out of the city and into the smaller town rural community.

And I should also remark that a vacation home does not have to be very luxurious. What we are also hearing is, people who simply want a small cottage to grow vegetables during the weekend, some different activity-- so hence, we are seeing a variety of different type of second homes.

ALEXIS CHRISTOFOUROS: All right, we're going to leave it there. Lawrence Yun, chief economist at the National Association of Realtors, good to see you today. Thank you.