For many Baby Boomers and some of their parents, there's no place like a second home. In fact, one of the hottest segments in real estate is second-home development, in which well-appointed occasional-use or vacation residences typically sell for $300,000 to $1,000,000.
As one might assume, the construction, marketing, financing and maintenance of second homes is big business. According to the Bureau of Labor Statistics (BLS), owners of all types of vacation properties including conventional single-family dwellings as well as condos, apartments and time-shares spend an average of $3,200 a year on such expenses as mortgage interest payments and property taxes, as well as maintenance, utility, security and insurance costs.
Based on our estimate of more than 6 million second homes in this country, spending on these residences exceeds $19 billion a year (a 46 percent increase from 1995). And that total doesn't include the initial costs of buying and furnishing the home. Over the next decade or so, because many Boomers (now 39 to 57 years old) will enter the prime life stage for buying a second home, the high growth rate in spending on such real estate should continue.
The growth rate of second-home buying is now about 5 percent per year, up from less than 2 percent per year in the 1990s. The increase is nearly keeping pace with the Boomer-driven growth in households headed by 55- to 64-year-olds, the age cohort most likely to purchase such a residence. Most second-home buyers today are high-income, high-asset, middle-age or older couples, who have children nearing adulthood or have no children living at home.
Yet a second home is not only a place to enjoy one's leisure time: It's also an investment with significant appreciation potential. The poor performance of the stock market in the past couple of years has given added lift to second-home purchasing as many people look to real estate as an alternative place to invest.
Just who are these second-home owners? And how do their spending priorities compare with those of average homeowners? A detailed description of the demographics and purchasing power of the owners of such properties has just become available from the BLS Consumer Expenditure Surveys. Using data from BLS surveys for 1999, 2000 and 2001, we obtained a large enough sample of vacation property owners to compare them with all other householders. To eliminate fishing and hunting shacks, we restricted our tabulation to those property owners who spend more than $500 a year on their second dwelling.
Information from the BLS surveys has enabled us to paint a portrait of second-home owners as middle-aged or older people who have an income of more than $80,000 a year and are college graduates. An average of 55 years old, second-home owners are a little older than all homeowners, who are 52 years old, on average. About half are 45 to 64 years old and about another quarter are 65 or older. Very few second-home owners are under 35, and only about 9 percent are 75 or older. (See chart, right.)
Despite the expense of two homes, these second-home owners are about 5 percent less likely than people who own one residence to have a mortgage on their primary dwelling. More than half (51 percent) of second-home owners graduated from college, compared with a third (34 percent) of single-home owners. One in five second-home owners (17 percent) earned an advanced degree. It should therefore come as no surprise that they are strong earners: Their annual income averages $83,600, versus less than $43,800 a year for those who own just one home.
The higher income is all the more remarkable, because 24 percent of second-home owners are retired, compared with 18 percent of those with one home. About 62 percent of second-home owners are salaried employees, compared with 66 percent of other householders.
Second-home owners spend far above average on hiring someone to care for their properties. People with two homes spend, on average, five times as much as those with one home on, among other things, lawn care, home security, pest control and housecleaning. One reason is that a majority of them are busy working; another reason is that they travel a lot more than average. The latter was unexpected, because one might assume that people with a vacation home would spend most of their downtime there. But second-home owners spend three times as much as people with one home on transportation for trips, hotels and other travel-related expenses.
Perhaps the biggest surprise was how much money people with more than one home contribute to churches, charities and educational groups: four times the average. This is partly because many of them are in the age range and income bracket where contributions are the largest. But even after accounting for that, owners of multiple homes seem to be uncommonly generous.
There are some goods and services that second-home owners spend less on than one might expect, given their income. They spend less on food at home and less on utilities for their primary dwelling, which they so often leave empty. They also spend far less than other householders on tobacco.
Second-home owners are a vitally important sector of the local economy in certain regions where they are prevalent, such as New England and Florida. Census 2000 found, for example, that one-third of housing units on Cape Cod were for seasonal, recreational or occasional use, compared with 2 percent of the housing units in the rest of Massachusetts. That may explain why retail sales per household are nearly 20 percent higher on Cape Cod than they are statewide, even though the median household income of the Cape's year-round residents is 17 percent below the median for the state.
Peter Francese is the founder of American Demographics. He can be reached at [email protected].