Second Home Market Rebounding Strongly

Apr 7 2014, 11:33AM

Although the second home mortgage market experienced a severe decline during the housing downturn, Americans still aspire to buy second homes and have contributed to the growth of the market consistently since it hit its bottom in 2009 Fannie Mae said today.  While most mortgages are still originated to purchase or refinance owner-occupied primary residences, there is a significant market for mortgages to purchase second homes, those that are neither investment properties nor primary residences.  Fannie Mae’s new report issued today, Second Homes:  Recovery Post Financial Crisis, is part of its Housing Insights series.

Second home mortgages have accounted for an average of 4.76 percent of the purchase mortgage market since 1998 and the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have been significant players, acquiring on average about 64 percent of the second home purchase mortgages by volume over that time period.

Fannie Mae uses information from the National Association of Realtors® (NAR) survey of second home buyers released last week to profile a typical second home buyer who is older, has a higher income, and is more likely to use a larger degree of cash to finance his purchase than the typical primary home buyer.  At the time of purchase 70 percent of second home mortgages had loan to value ratios under 80 percent compared with 44 percent of primary residence mortgages.

 

 

Second home mortgage originations have historically moved in tandem with the boom-bust cycle of the real estate market.  The share of second home mortgages more than tripled between the late 1990s and the peak year of 2006 then declined through 2009.  In every year since however the second home share of the purchase-money market (PMM) has increased.  During this period, however, the GSEs share of the market has decreased as the share of whole loans held by banks and other institutions has grown, suggesting that private lenders are becoming more willing to lend to these borrowers.  Between them the GSEs and bank portfolios now hold nearly 100 percent of the market compared to 77 percent in 2006.  Fannie Mae says one of the major reasons for this increase in market share is the exit of private label security (PLS) competitors from the larger playing field after the market collapse.

 

 

The boom years were good for second home mortgages which peaked at more than 15 times their 1998 volume during the housing bubble compared to around a 400 percent increase for other purchase mortgages.  However, the PLS share of second home originations, which was as high as 17 percent in 2006, has not rebounded as second home sales have recovered.

Fannie Mae says that geography played a role in both the decline and resurgence of the second home market.  Since January 1998, just over 1/3 of all second home mortgages have been originated on properties in Florida, California, and Arizona, three of the four states that then entered a multi-year foreclosure epidemic and witnessed huge price declines of over 40 percent each.  The only state with a larger price drop was Nevada, which was not a popular second home destination, accounting for only 2.5 percent of those mortgage originations from 1998 forward.  Those three Sunbelt states did not lose their popularity among second home buyers and accounted again for 34 percent of the second home mortgages originated in 2013.

While second home mortgages bubbled like all other purchase mortgages in the pre-2006 period, they did not perform as poorly as the others when the crisis hit.  While both first home and second home mortgages saw delinquencies trend upward in the years immediately after the bubble the second home purchase series outperformed the all other purchases series, indicating that second home borrowers have been better able to meet their mortgage obligations.

Fannie Mae noted many factors that will affect the future direction of second home purchases and second home mortgage originations.

  • Many buyers are affluent enough to pay cash and according to the NAR, between 2009 and 2013 an average of 38 percent of second home buyers did so. The remaining 62 percent who rely on a mortgage must have adequate income to qualify for those second home mortgage payments.
  • During the recovery housing wealth appreciation has lagged financial wealth. The recovery in financial markets has allowed many second home buyers, who are typically older and more likely to own financial assets, to sell some of their assets to buy second homes or use income from these assets to cover second home mortgage expenses. As shown in Exhibit E, older age cohorts, who are more likely to buy second homes, tend to own more financial assets.

  • The home price recovery rate in the three popular second home sites of Arizona, California, and Florida is another factor. The Federal Housing Finance Agency price indices comparing these three states to national averages show that two of the three have kept up with the national recovery, regaining about one third of their home price peak to trough losses but Florida lags far behind, having reclaimed only about 18 percent since bottoming out. Given this slow recovery and that Florida has accounted for the largest single share of second mortgage originations since 1998 (17 percent), home buyers have an opportunity to invest in Florida at bargain prices. That financial assets have recovered more quickly than home prices further increases this opportunity.
  • Yet another factor is the aging of the American population. The age group most likely to purchase a second home, those between 45 and 64 years of age, will grow at a slower rate than that of the total adult population between 2015 and 2060. Thus, while demand for second homes will continue to grow, it will likely occupy a smaller portion of the total purchase market. However, assuming that Americans continue existing investment patterns as they age and that aspirations of second home ownership do not wane, second homes should still occupy a significant place in the residential real estate market.

Fannie Mae concludes that although the second home mortgage market was also hit hard by the housing downturn, Americans still want to buy second homes and have contributed to the growth of the market consistently since its bottom in 2009.  The GSEs acquired roughly 60 percent of second home mortgage origination volume in 2013 and, barring rapid resurgence in PLS lending, should continue to be major players in the second home mortgage market.  “As the population continues to age, we expect people to continue to use their savings to buy second homes, thereby contributing to a segment of the mortgage market that will continue to grow in the years to come.”

Fallout From Refinancing – NYTimes.com

 

 

Credit The New York Times

 

 

Homeowners who refinanced when fixed mortgage rates dropped below 4 percent will be less inclined to put their homes on the market as interest rates climb. And as a result, the limited property supply already impeding sales in many markets may not ease anytime soon.

A recent survey by Redfin, a national real estate brokerage based in Seattle, suggests that even those beneficiaries of low-refinance rates who do decide to move may want to make money renting out their homes while waiting for prices to rise, rather than sell right away.

Redfin questioned 1,900 people nationwide who said they planned to buy a home within a year; 42 percent said they already owned one, and of those, 39 percent said they planned to rent it out after they moved. The survey also asked buyers about their frustrations with the process, and “low inventory” topped the list.

 

 

Market dynamics are encouraging owners to keep their homes off the market for now, said Anthony Hsieh, the chief executive of loanDepot, a mortgage lender. “The rental market is very, very healthy today because a lot of Americans are locked out of the mortgage market,” he said. “And there is the promise that real estate is going to appreciate, because we’re just coming out of a deep recession.”

Of course, most borrowers can’t afford to buy another home without using equity from their first for a down payment. But Mr. Hsieh says that those who were able to take advantage of low refinance rates tend to be “premium consumers,” with very good credit and stable, above-average incomes.

“These are the folks that will think twice before they pay off that mortgage that is such cheap money,” he said. “They’re going to explore all types of options before they do that.”

They may want to consider a few other factors before taking on tenants, said Jed Kolko, the chief economist of Trulia, an online marketplace for residential real estate. First is the effort involved in managing a rental property. Second is the greater financial risk of owning two homes in the same market should home prices take a dive. And third is the changing nature of what’s driving rents.

“Over the past several years,” Mr. Kolko said, “the strong demand for renting single-family homes has been driven by people who lost homes to foreclosure but still wanted to stay in the same area. But now it is more driven by young people, and they are more urban focused.”

Patric H. Hendershott, a senior research fellow at the Institute for Housing Studies at DePaul University in Chicago, says he has witnessed the current allure of being a landlord firsthand. He lives in a housing community for older people, and he has recently noticed that residents who are moving to larger units are choosing to rent out their smaller ones.

But he views another scenario as more likely for low-rate holders: Those who can’t afford to move on without selling will essentially be “locked into” their homes. As interest rates rise, even buying another home at the same price will result in a higher mortgage payment.

In a recent analysis of the effect of lock-ins, Mr. Hendershott predicted that if rates continue to rise, the result will be substantial declines in housing turnover in strong housing markets, in which large numbers of households refinanced at low rates.

“We had a big episode of this in the 1980s,” he said, recalling when soaring interest rates locked in large numbers of homeowners.

Research cited in his analysis found that during that period, household mobility declined by 15 percent for every 2 percent increase in rates.

 

Warning: Stocks Will Collapse by 50% in 2014

Sunday, 02 Mar 2014 12:42 PM

By Newsmax Wires

It is only a matter of time before the stock market plunges by 50% or more, according to several reputable experts.

“We have no right to be surprised by a severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund manager who is notorious for his hugely profitable billion-dollar bet on the 2008 crisis. “In fact, we must absolutely expect it.”

Unfortunately Spitznagel isn’t alone.

“We are in a gigantic financial asset bubble,” warns Swiss adviser and fund manager Marc Faber. “It could burst any day.”

Faber doesn’t hesitate to put the blame squarely on President Obama’s big government policies and the Federal Reserve’s risky low-rate policies, which, he says, “penalize the income earners, the savers who save, your parents — why should your parents be forced to speculate in stocks and in real estate and everything under the sun?”

Billion-dollar investor Warren Buffett is rumored to be preparing for a crash as well. The “Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment.

So with an inevitable crash looming, what are Main Street investors to do?

One option is to sell all your stocks and stuff your money under the mattress, and another option is to risk everything and ride out the storm.

But according to Sean Hyman, founder of Absolute Profits, there is a third option.

“There are specific sectors of the market that are all but guaranteed to perform well during the next few months,” Hyman explains. “Getting out of stocks now could be costly.”

How can Hyman be so sure?

He has access to a secret Wall Street calendar that has beat the overall market by 250% since 1968. This calendar simply lists 19 investments (based on sectors of the market) and 38 dates to buy and sell them, and by doing so, one could turn $1,000 into as much as $300,000 in a 10-year time frame.

Editor’s Note: Sean Hyman Reveals His Secret Wall Street Calendar in This Controversial Video, Click Here

“But this calendar is just one part of my investment system,” Hyman adds. “I also have a Crash Alert System that is designed to warn investors before a major correction as well.”

(The Crash Alert System was actually programmed by one of the individuals who coded nuclear missile flight patterns during the Cold War so that it could be as close to 100% accurate as possible).

Hyman explains that if the market starts to plunge, the Crash Alert System will signal a sell alert warning investors to go to cash.

“You would have been able to completely avoid the 2000 and 2008 collapses if you were using this system based on our back-testing,” Hyman explains. “Imagine how much more money you would have if you had avoided those horrific sell-offs.”

One might think Sean is being too confident, but he has proven himself correct in front of millions of people time and time again.

In a 2012 interview on Bloomberg Television, Hyman correctly predicted that Best Buy would drop down to $11 a share and then it would rally back up to $40 a share over the next few months. The stock did exactly what Hyman predicted.

Then, during a Fox Business interview with Gerri Willis in early 2013, he forecast that the market would rally to new highs of 15,000 despite the massive sell-off that was haunting investors. The stock market almost immediately rebounded and hit Hyman’s targets.

“A lot of people think I am lucky,” Sean said. “But it has nothing to do with luck. It has everything to do with certain tools I use. Tools like the secret Wall Street calendar and my Crash Alert System.”

With more financial uncertainty that ever, thousands of people are flocking to Hyman for his guidance. He has over 114,000 subscribers to his monthly newsletter, and his investment videos have been seen millions of times.

In a recent video, Hyman not only reveals the secret Wall Street calendar, he also shows how his Crash Alert System works so that anybody can follow in his footsteps (click here to watch it now).


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