Home Sweet Second Home

Whenever I speak at finance and economics conferences around the world, I find that a great conversation starter with the spouses of the middle-aged business people who attend is to inquire about their vacation home. I then find myself entertained by stories of gorgeous ocean sunsets seen from the porch, views onto expanses of colorful wildflowers on mountainsides, and happy family reunions in beautiful seclusion (as well as problems with the plumbing).

Years ago, I never asked about vacation homes. They never seemed so much on people’s minds. Purchases of second homes for pleasure were confined to the rich, and thus did not seem quite so much of a conversation topic for the rank-and-file business people that I meet at such conferences.

But now the world is undergoing a second-home boom: an increasing number of people are buying vacation homes in beautiful and fun places that are within a few hours’ flying time from their first homes and jobs. Their second homes are a retreat where they will spend only a fraction of the year, and recently pristine mountain ridges and ocean cliffs are being dotted with new homes to meet the demand.

A study by the National Association of Realtors (NAR) indicates that 13% of all homes purchased in the United States in 2004 were vacation homes. This does not include buyers who purchased homes as investment properties, mostly to rent out. According to the NAR, investment buyers account for another 23% of home sales, bringing second-home purchases to 36% of the total.