Bargain-Basement Home Prices Woo Investors, Vacationers

Consumers snapped up more bargain-priced investment and vacation homes in 2011.

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Though some experts billed 2011 as the worst year on record for the housing market, it seems one sliver of the market was a slice of paradise.

Consumers scooped up vacation and investment homes at bargain-basement prices, according to the National Association of Realtors, going on a buying binge not seen since the height of the housing bubble in 2005.

Investment home sales—primarily properties bought with the intention of renting to tenants—surged almost 65 percent in 2011, while vacation home sales rose about 7 percent, according to NAR.

Investors with cash played a big role in the spike, NAR chief economist Lawrence Yun said in a statement, adding that more than 40 percent of investment buyers purchased more than one property.

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"During the past year, investors have been swooping into the markets to take advantage of bargain home prices," he said. "Rising rental income easily beat cash sitting in banks as an inducement."

Many of the homes picked up by investors and vacation homebuyers were distressed properties, Yun added, demonstrating the market is able to absorb foreclosures hitting the market with little government intervention.

"Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas," Yun said, alluding to recent plans to parse out chunks of government-owned properties and sell them to investment companies. "Even where alternatives are needed, it's best to rely on the expertise of local businesses, nonprofit organizations, and government."

[Read: Real Estate Recovery: Are We There Yet?]

While investor purchases skyrocketed, owner-occupied purchases fell almost 16 percent in 2011, as would-be buyers in need of mortgage financing were thwarted by the tight lending environment.

"Given the tight credit in recent years, many would-be normal home buyers for owner occupancy declined," Yun said.

But if the uptick in investor purchase activity sounds like another housing bubble in the making, don't fret. Very little "flipping" went on last year, according to NAR, and only 5 percent of homes purchased by investors have already been resold. Contrary to the boom years, about half of investment buyers said they purchased property to generate another income stream, or to diversify their financial investments.

Twitter: @mmhandley