Real Estate Drops But Second Home Market May See Increase

Mortgages also remain very low. For two months now the 30-year fixed rate mortgage has been below 4 percent, averaging 3.98 percent in the week ending January 26. Also down, the 15-year fixed-rate mortgage. Last year it was at 4.09 percent and it was down to 3.24 percent, the week ending January 26.

Many homeowners are searching for the bottom but the bottom doesn't appear to be in sight yet. Property values in 20 cities declined 3.7 percent from November 2010, according to the S&P/Case-Shiller index.

While housing is more affordable, "The household balance sheet is still a mess," said Karl Case on Bloomberg radio, Co-Founder, Case-Shiller. Homeowners are still struggling to make ends meet and many are just barely hanging onto their homes.

However, Case believes, "The seeds of recovery are being planted," albeit slowly.

Those who are staying put are helping to fuel the remodeling industry. "Homeowners are estimated to spend a total of $113.6 billion on home improvements in the U.S. through the third quarter of 2012," according to The National Association of the Remodeling Industry (NARI).

While homeowners fix up their properties, millions of baby boomers (40.7 million people ages 50-59 in the U.S.) prepare to retire and many are predicted to enter the vacation and rental property markets, which would fuel the demand for these types of properties for the next several years.

The second-home market may be a shining star in the real estate market. The National Association of Realtors (NAR) uses the U.S. Census Bureau's data to look at the housing numbers. There are 74.8 million owner-occupied homes, 7.9 million vacation homes, and 41.6 million investment units in the United States.

The primary buying market is dominated by those aged 40-49, of which this group is 43.8 million strong. And, following closely behind at 40.4 million, is the 30-39 age group, which is soon to reach the prime age for buying. This group will also help fuel the second-home market in the coming decades.

Many of those who are purchasing second-homes are doing so with the thought that the home will likely become their place of retirement. So, they're capitalizing on the great deals on the market. Second-home purchasers tend to buy discounted distressed properties, more so than those buying primary residences. However, according to some statistics, the average vacation-home owner leaves the property vacant as much as 90 percent of the year and is therefore missing out on valuable rental income.

Purchasing a second home in today's market could mean getting a very enticing deal. But it's important to think things through and understand what your needs will be in the future.

Buying a property and renting it out can be a steady income stream until you're ready to take over the home and move into it. But many people have concerns about how the home will be kept up and if rental usage will create big maintenance issues. While these are valid concerns, renting your home out can offer some significant benefits. For instance, if you limit your personal usage of the property to only 10 percent (14 days), you may be be able to take a deduction of up to $25,000 in losses for things like maintenance.

Buying a second-home and entering into the rental property market doesn't have to scare you. However, you should seek professional and expert help to identify the best scenario for your housing and financial needs, now and in the years to come.