Secondary Homes Move From Niche Market to MAINSTAY

The majority of Coldwell Banker Global Luxury Specialists say that their HNW clients are looking for primary residences – and that may be true, depending on the market they represent – but recent data also supports the opposite narrative. The affluent still appear to be on the hunt for secondary homes despite higher interest rates eating into their affordability.

MORE SECONDARY-HOME OWNERS THAN EVER BEFORE

The secondary-home ownership trend gained prominence during the pandemic as remote work took root along with growing wealth and stock market portfolios. With remote work expected to be permanent for many high-income earners, secondary desires – like creating generational wealth, the need for long-term wealth-building assets, and a strong push to spend quality time with their favorite people in memorable locales – have coalesced around secondary homes, taking them from a niche market to a mainstay of the affluent lifestyle.

According to Wealth-X, the number of U.S. homeowners with a net worth of $5 million+ jumped from 1,255,710 to 1,675,756 from 2021 to 2022 – a 33% increase.

The percentage of those who own two or more properties also increased from 70% in 2021 to 79% in 2022 – with the most significant increase going to those who own three or more homes.

This trend aligns with the findings from a 2022 Coldwell Banker Global Luxury/Censuswide survey of 2,000 U.S.based HNW individuals, featured in The Trend Report 2022, which found that 72% of respondents said that their new home would be either a second residence, rental property, or vacation home.

WHO IS DRIVING DEMAND?

While baby boomers were thought to be prevalent buyers of secondary homes during the pandemic, they are not expected to play as prominent a role in the market since many of them have likely already secured these homes.

The next wave of secondary-home buying, rather, is predicted to be driven by Gen-X and millennials.

However, they’re not looking for the same types of secondary homes as their parents or grandparents. They prefer hybrid properties – ones that they can use as parttime getaways and rent out the rest of the time while building wealth. This is especially true of millennials, those born between 1981 and 1996, who have lagged behind in homeownership rates of previous generations.

Priced out of big cities, where home prices have substantially risen, some financially savvy millennials have started to bypass the starter home altogether in favor of purchasing escape homes in further-out, lesserin-demand locations that offer plenty of recreation and adventures.4 These homes tend to be smaller and less expensive, on average, and that’s just fine with them. It’s all part of their wealth-building strategy.

Social media influencers are thought to have a partial hand in this trend. Some have encouraged their followers to purchase “experiences” and invest in “assets not liabilities.” From their point of view, buying secondary homes can provide younger investors with the best of both worlds – a steady revenue stream that can help them build wealth and a property that they can escape to whenever they please.

“Owning properties in different locations offers them a variety of experiences and lifestyles,” said Michael Altneu, Vice President of Global Luxury for Coldwell Banker Real Estate LLC. “The flexibility of remote work has really made this possible over the last few years. Millennials, who tend to value experiences rather than things, appear to be fully leaning into this idea.”

Metropolitan Areas

New York, NY

Silicon Valley, CA

San Francisco, CA

Los Angeles, CA

Chicago, IL

Washington, D.C.

Philadelphia, PA

Boston, MA

Houston, TX

Inland Empire, CA

WHICH MARKETS ARE DRIVING SECONDARY-HOME OWNERSHIP?

According to Wealth-X, New York has the highest population of HNW individuals who own secondary homes in other cities. Silicon Valley, the San Francisco Bay area, Los Angeles, and Chicago followed. Not a surprise, given wealthy East Coasters and mid-Westerners’ propensity for flocking to warmer climes during winter months, and Californians’ love

#

39,053

23,377

17,431

16,792

16,144

10,984

10,730

10,659

8,481

7,831

*Number of individuals with a net worth of $5 million+ of the mountains, desert, or beach for a change of pace. New York, Los Angeles, and San Francisco are also known for having some of the country’s most expensive real estate, possibly prompting some savvy residents to purchase more affordable secondary homes elsewhere.

The top two metropolitan areas with the highest concentration of secondary-home owners with a net worth of $5 million+ are two of the most expensive coastal areas: New York and Los Angeles. It is noteworthy that these cities – already known to be epicenters for UHNW individuals – are equally in high demand by HNW individuals in lower wealth brackets. These metros also have the highest populations of affluent primary residents in the United States.

It’s interesting to see the proportion of primary residents compared to the proportion of secondary-home owners in resort markets like Miami and Naples, which emerged as secondary-home hotspots during the pandemic for wealthy New Yorkers and mid-Westerners. The Denver metro area’s appearance among the top 10 also speaks to the Rocky Mountain region’s growing appeal as a playground for young, wealthy, coastal transplants from New York and California.

TOP 10 M ARK ETS FOR SECONDARY - HOME OWNERS

Los

San

Washington,

Silicon Valley, CA

Naples, FL

Boston, MA

Chicago, IL

Denver, CO

SECONDARY-HOME MARKETS DIVERSIFY

The secondary-home market is not a niche sector anymore. In a sign of the secondary-home market’s solid footing, nearly half of all individuals with $5 million+ in net worth now own three or more homes. If the U.S. stays on its current trajectory and the population of HNW individuals grows over the next several years as forecasted by Wealth-X, this number could be much larger in the future. This means more of these luxury buyers will likely be entering the scene in search of their next vacation spot or an extra source of income – and that means more diversification could be on the way.

In the early days of the pandemic, there was a notable shift to premium resort/recreation markets such as Napa, Kauai, Naples, Aspen, and Lake Tahoe. Then, as affordability shrank and inventory levels deteriorated, some buyers shifted their focus to adjacent locations like Bonita Springs, Snowmass, and Truckee. Meanwhile, large cities like New York, initially hit hard by the pandemic and then rebounded, got help from locals who capitalized on the opportunity to snap up a secondary income-producing apartment when prices were low.

In 2023, the expectation is that a mix of premium and more affordable secondary-home markets, as well as some resort and urban locations, will hold their own. We could also see modest price growth in some of these locations if inventory remains tight and small price drops in others, which could give weary buyers a chance to return to their dreams of escape or pursue their goals for long-term financial security.

For example, prices increased modestly toward the end of 2022 in Napa wine country and Arizona’s favorite snowbird spot, Scottsdale, in a show of demand strength. Meanwhile Cape Cod, Lake Tahoe, and Naples, Florida, could present new opportunities for secondary-home buyers this year thanks to rising luxury home inventory levels and softening prices in fourth quarter 2022. Settings with access to nature – in the mountains, near national parks, or along the water – will particularly remain fertile buying ground as HNW individuals continue to prioritize their mental wellbeing and personal life enjoyment.