NAR Forecast: decline in investment home purchases

The National Association of Realtors predicted that purchases of investment homes will decline this year after surging in recent years.

A survey of home buyers by the trade group found that 28% of all homes purchased in 2005 were for investment rather than for occupancy by the buyers, up from 25% in 2004 — figures that are far higher than those shown by mortgage-lending data. Such homes are generally bought to serve as rental properties, at least in the short term.

The rise in mortgage interest rates in the past year will discourage some investors, says David Lereah, chief economist for the NAR. “There are fewer incentives to speculate in the market with price appreciation cooling in much of the country.”

Still, Mr. Lereah and many other housing economists expect the housing market to settle into a “soft landing” after the frenzied demand of recent years. Some housing experts warn, however, that prices could fall at least modestly in some cities.

The NAR also reported strong demand for vacation homes, estimating that they accounted for 12% of the market in 2005, up from 11% a year earlier. Much of that demand comes from baby boomers in their peak earning years. The NAR said the median price of a vacation home rose 7.4% last year to $204,100.

Source: James R. Hagerty, The Wall Street Journal Online