At the height of summer, as Americans visit their favorite beach getaways and mountain retreats, many will engage in an increasingly popular activity -- scouting for a second home. Others, who once again haven't spent as much time in the homes they already own, may dream about the riches of renting.

Last year, the number of second homes purchased as vacation or investment properties reached a record 445,000, or about 5% of all U.S. homes sold, according to the National Association of Realtors. And demand over the next decade is expected to remain as high as temperatures in August.

The quest for second homes is driven mainly by middle-class baby boomers seeking restful hideaways, investment alternatives to the slumping stock market and future retirement homes. (See the chart below for a demographic profile of owners.)

"For most people, buying a second home is very much a lifestyle choice, but the investment potential has increased given strong price appreciation," said David Lereah, chief economist for the National Association of Realtors, on the results of his association's benchmark 2002 study of second homes.

The association also views the upswing in second-home purchases as a desire by some investors to diversify their assets. Before 2000, only 7% of buyers sold stocks or bonds to help pay for a second home, while after the major market downturn of that year 16% did so.

Giving the second-home movement a considerable boost is the 1997 liberalized tax law that lets homeowners reap sizable tax-free gains from the sale of their primary residences multiple times.

Generally, homeowners who sell their principal residences where they have lived for two of the past five consecutive years can pocket as much as $500,000 in profit free of capital gains if married, or as much as $250,000 if single. They can do this repeatedly if they follow the tax rules.

Home Away From Home
Second-home market at a glance
  • Between 1980 and 2000, the number of homes more than doubled to 3.6 million.
  • The median age of home-buyers in 2002 was 47 years old.
  • The typical owner is 61 years old with household income of $76,900, has owned the property for nine years and purchased it for recreational use.
  • People who buy close to big cities are more likely to have families and to feel stressed by time. Owners spend a median of eight weeks per year at their properties.
  • Most owners live a median distance of 185 miles away, while one-third were less than 100 miles away.
  • Vacation homeowners identified their homes in this way: 31% had cabins or cottages, 27% had a detached single-family house, 17% a mobile home, 11% a multifamily unit and 6% a two-to-four unit structure.
  • Some city dwellers downsize their primary residence to add a second home.
  • States with a large number of second homes have significant coastal waters: Florida, Michigan and Maine.
  • Middle-class buyers are becoming a presence in such once-isolated areas as the Finger Lakes in upstate New York and more remote sections of New Hampshire.
  • The terrorist attacks of Sept. 11 increased people's desire to find a haven from potential targets.
  • Telecommuting has allowed a growing number of vacation homeowners to use their weekend retreats interchangeably with their first homes.
Sources: American Demographics, National Association of Realtors

If you liked this article you might like

Street Wishes for Windfall

Street Wishes for Windfall

No Quick Fix for Social </BR>Security System

No Quick Fix for Social
Security System

A Short Course in Private Accounts

A Short Course in Private Accounts

Mortgage Applications Slip

Mortgage Applications Slip

Mortgage Activity Up, Rates Flat

Mortgage Activity Up, Rates Flat