Just a Second: Expensive markets are forcing some first-time homebuyers to look outside their primary markets for their first home purchase—a vacation home.
By Megan Craig
Availability of homes for first-time buyers is failing to keep pace with the number of millennials looking to buy, according to a recent report from the National Association of REALTORS®.
That rift in the housing market has created a new phenomenon: first-time homebuyers investing in vacation homes outside the market where they primarily live.
It’s unclear exactly how common it is for a first-time homebuyer to purchase a vacation home, rather than a primary residence. The NAR doesn’t keep specific data on how many first-time homebuyers are purchasing non-primary homes, says Jessica Lautz, NAR’s managing director of surveys and communications.
But she’s hearing so much about the trend, she plans to start tracking that data this year.
“For the more affordable homes that are on the market, the inventory is so tight that it’s hard for first-time homebuyers to get in the market,” Lautz says. “Prices are rising rapidly in many local markets, impacting who can buy a home. There’s a lot of competition and a lot of demand for first-time homebuyers.”
Priced Out
Bruce Soli, CRS, is a REALTOR® in Lake Tahoe on both the Nevada and California sides, a market consisting mostly of second homes. Soli says he sees some buyers who are gainfully employed in the San Francisco Bay area who have very high-paying jobs, but who still can’t afford to buy a place in one of the most expensive markets in the country.
Those buyers want to get into the housing game, so they buy their lifestyle home instead of a primary residence, Soli says. And even though the home isn’t a primary residence, it still qualifies the person for the same tax benefits as any new homeowner.
Mile-High Prospects
If millennials are buying second homes first because they’re priced out of their primary market, it makes sense that one of the fastest-growing markets—with a relatively small number of starter homes—would be the next to price people out of the primary market and into the vacation market.
That makes Denver the next major market likely to see millennials buying vacation homes instead of primary residences, says George R. Harvey Jr., CRS, an owner/broker in Telluride, Colorado.
“Millennials do want to buy, but they’re struggling because so many markets are just unaffordable. I’ve just described the Denver market: It’s flooded with millennials because of a great job market, but first-time homebuyer opportunities are not so good,” Harvey says. He says he wouldn’t be surprised to see Denver as the next priced-out market, pushing potential first-time buyers out to less expensive vacation towns surrounding the city.
“Many (potential first-time buyers) have a good income, and they hate wasting rent money because they’re not getting anything back as an investment,” he says. “So they might start thinking, maybe I’ll buy a little place somewhere else.”
“They’re gaining equity,” he says. “They’re choosing to buy a home in a place where they like to vacation anyway. It’s their escape from that urban environment.”
As an added financial benefit, first-time homebuyers in a vacation-home market may be able to rent out the home as a short- or long-term vacation rental when they’re staying at their primary residence, covering the mortgage or earning money off the property. Plus, they don’t have to spend additional money on weekend getaways.
“The thinking is that they will endure their tiny apartment, and stretch out and enjoy the country on the weekends,” says Sharon Breslau, CRS, an associate broker at Westwood Metes & Bounds Realty in Woodstock, New York, in the Catskill Mountains. “Many of my clients [from New York City] go for their vacation home first because they are getting so much bang for their buck, and they want to have a place to call their own.”
Not Tied Down
As soon as millennials realize they can have a reasonable amount of student loan debt, put 3 percent down and get a home on the beach or in the mountains, they’ll do it, says Claire Jean Prager, CRS, an associate broker with Coldwell Banker in Tucson, Arizona. That’s because they want the flexibility that comes with renting where they work and owning where they play.
“They want to remain mobile—so they’re not very invested in purchasing a home in the city where they’re working,” Prager says. “They don’t know they’re going to stay at that job forever, but they do know they’ll always love canoeing, or they’ll always love skiing.”
And with ease of communication via internet and cell phone, many people have the freedom to work from home, rather than being tied to an office. This allows them to purchase a secondary home to use more often than just on weekends, she says.
“Buying a home in the Catskills, for example, is all about lifestyle—clearing your head of all the noise and pollution, high prices and too many people,” Breslau says. “Peace of mind is worth its weight in gold these days.” 
