A housing industry that remains
focused on originating safe primary mortgages may be overlooking a new purchase
money niche "ready for the tapping."
According to Fannie Mae's Housing
Industry Forum, second home mortgages may be safer loans, with lower
delinquency and default rates than is found in the traditional primary home
Necole Peralta, writing for the Forum says that while many homeowners
continue to struggle with payments on their mortgages, those with means are
taking advantage of low interest rates and stagnant inventories to purchase a
second home in vacation markets. Sales
of homes that are neither primary residences nor investment properties have
averaged 4.76 percent of sales over the last 16 years but there has been a
recent uptick in those sales. The
National Association of Realtors (NAR) found that vacation home sales, which
experienced a severe decline in the housing downturn, jumped 29.7 percent from
553,000 in 2012 to 717,000 in 2013.
NAR says in its 2014 Investment and
Vacation Home Buyers Survey that "A diverse set of buyers and property types comprise the
second-home sector and opportunities for second-home buyers exist in nearly
every market, even in nontraditional, non-resort markets." NAR identifies an average buyer as being 47
and in a two income household. At least
61 percent use a mortgage to purchase their second home and downpayments tend
to be large.
Peralta said these buyers may present a new and
under-tapped opportunity for servicers
and lenders whose main post-crisis response has been to tighten credit
standards, keep loans on their portfolios longer and increase
securitization. While the tendency is to
originate loans with very high credit scores which in theory present little
default risk, a sound loan and a good credit score can turn on a dime in the
face of job loss and extended
unemployment in the current volatile job market..
Fannie Mae's Economic &
Strategic Research group (ESR) recently examined second home data and found
that second home mortgages tend to be safer loans, with lower delinquency and
default rates than other purchase mortgages.
Geographically, the majority of
second home purchases correlate to areas that experienced a higher decline in
home prices during and after the recession.
Florida, California, and Arizona each experienced home price declines of
40 to 46 percent between 2006 and 2012 An abundance of lower-priced properties now
makes these states the top three for second home purchases, accounting for 34
percent of such mortgages originated last year.
Mae's Business Analyst David Kopita says, "By
combining financial wealth data with home price and population data, findings
suggest that the outlook for second home sales is positive in the near term, as
those who have enjoyed appreciation in financial wealth now find themselves
able to buy homes in popular second home destinations at a comparatively low
cost." "Further, as the population
continues to age in the coming years more people will find themselves in this
position, assuming investment patterns remain similar," he adds.
Of course record low interest rates,
not necessarily always a boon to persons of means, is another positive factor feeding
second home sales.