Why You May Want To Cash in on Your Second Home
When stay-at-home mandates were enforced last year, many households realized their homes didn’t fulfill their new lifestyle needs. An office (in some cases two), a media room, a space for children to learn, a gym, and a large yard are all amenities that became highly desirable almost overnight.
Zelman & Associates recently reported that sales of primary residences grew by 9% in 2020. That increase in demand was met by the lowest supply of homes for sale in history. High demand and low supply caused prices to skyrocket over the past twelve months. Here are three home price indexes released most recently that show how home values have risen:
- FHFA Agency House Price Index shows a 13.9% increase
- CoreLogic Home Price Insights Report shows an 11.3% increase
- S&P Case-Shiller U.S. National Home Price Index shows a 13.2% increase
Prices increased by double digits in every region of the country and 19 of 20 major metros. Chicago was the only exception, where prices still rose by 9%.
What does this mean to those who purchased a second home during the pandemic?
Many people didn’t want to give up a home in the city or close to their office. Instead, they purchased a larger second home farther away and moved there to stay safe and have more space. According to the same Zelman report, sales for second homes rose an astonishing 27% in 2020.
That large second-home retreat on a lake or in the mountains would demand a higher price than the average house. Let’s assume a buyer purchased such a home for $500,000. Taking the middle 13.2% appreciation shown above, that home would now be worth about $566,000.
Those who bought second homes to improve their lifestyle during the height of the pandemic, or those who just wanted to be in a safer environment, also made a great investment.
What should these homeowners do now as the pandemic recurs and the economy reopens?
The buyers of those second homes now have the decision to make. Many will return to their original home (the one family). Should they keep the second home? That could depend on answers to questions like these:
- Now that you may have to go back to the office (at least a few days a week) and students are required to attend school physically, would you still use the second house enough to warrant the expenses of an additional home?
- Would you go to the second home on most weekends, return to the movie theater, attend sporting events, eat out at fine restaurants, or spend time traveling again?
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