Buying, Finance, Travel

Is This The Year to Buy A Second Home?

If your family loves to return to a particular vacation spot every year, it may be time to consider buying a vacation home. Vacation homes are a great way to promote family togetherness and as time passes, you may want to sell your primary home and retire to your vacation digs. With short-term renting so popular these days, a steady flow of rental income when your family isn’t vacationing can seem pretty attractive. It’s a popular dream and one that is within reach of millions of families.

Maybe the best year in a decade?

Like a perfect storm, the strong economy, surprisingly low mortgage rates, amount of equity most homeowners have in their primary homes today, and the continuing attraction of investment real estate are all helping to make this year an exceptionally attractive one for vacation home buyers.

The amount of equity a homeowner owns of their home is determined by the difference between a home’s fair market value and the amount owed on its mortgage. At the end of last year, about one of every four homeowners were “equity rich,” where the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value. That’s a new high, according to ATTOM Data Solutions.

If you have good credit, most lenders require a down payment of around 10 percent, and if you have the equity available, you can borrow enough cash for the down payment. That means for $20,000 down, you could move into a $200,000 vacation home this summer, giving you the chance to build equity on two properties!

Price increases are slowing

In general, price increases for condos and single-family homes are slowing down this year. Some economists are predicting that prices will only appreciate about 3 to 4 percent by the end of the year. A high percentage of markets overvalued today are on the East and West Coasts, which are rich in beach, surf, and boating resorts.

Here’s a quick update on current price trends of some of America’s most popular summertime destinations, according to Little Big Homes:

Myrtle Beach, SC  Prices in Myrtle Beach declined from 2008 thru 2013, but are now rebounding. Though values are still about 10 percent below their peak during the housing boom, homes last year appreciated 8.4 percent with Myrtle Beach prices having increased for the past 12 consecutive quarters.

Orlando, FL  The Orlando housing market for the next 3 years is predicted to rise. Last year prices rose more than 10 percent.

Atlantic City, NJ  Prices in Atlantic City rose only 3.6 percent last year, and home values are nearly 20 percent lower than they were 10 years ago.

Asheville, NC  In  2018, prices rose 9.7 percent, the greatest annual increase since 2013. Prices are expected to continue to rise this year.

Virginia Beach, VA  Prices rose only 2.9 percent last year and are expected to continue to grow at a modest rate this year.

Prescott, AZ  Last year’s prices in Prescott rose 9.9 percent after rising 10.65 percent in 2017. Prices are expected to continue to rise this year.      

Boulder, CO  Since 2013, prices in Boulder have risen 9 percent a year, far above the national average. Over the past ten years, Boulder ranks fifth nationally for price appreciation.

Reno, NV   Over the past five years, Reno led the nation in home price appreciation. Home prices in Reno have been on fire, rising in double digits each year since 2013.

Santa Barbara, CA  Last year’s home prices in Santa Barbara rose 6 percent, slightly under California’s 6.9 percent increase.

Second homes cleared for short-term rentals

Fannie Mae, the government-chartered corporation that buys and securitizes mortgages recently confirmed that owners of a second home could rent their property on Airbnb, VRBO, and to other short-term tenants after owning their homes for one year.  With the rider in force, Fannie Mae would not classify those homes as investment properties, which have higher interest rates.

In the past, second homes purchased for the express purpose of earning rental income were usually required to be financed with a different type of mortgage that carried a higher interest rate, reflecting the understanding by lenders and regulators that a loan on a home other than the borrower’s primary residence was at greater risk of default.

Buyers taking out mortgages for second homes should check to see that their loan includes a second home rider to ensure underwriters classify their purchases as second homes, not investment properties. The rider’s new language now explicitly allows homeowners to rent a second home after one year of ownership, it also allows short-term renting in the first year under certain conditions.

Conforming second-home mortgages in 2018 had an average rate of 4.55 percent compared with 5.16 percent for investment loans, according to mortgage data and technology firm Black Knight, as discussed in the Wall Street Journal.

For more on vacation homes

Short-term renting is generating plenty of business for vacation homeowners, so if you’re thinking about renting your home on a short-term site, check out things to know before renting your home on Airbnb. For a complete discussion of how the 2017 tax reform legislation affected second homes, check out how the new tax law affects vacation home rentals, and a succinct summary from the IRS on how the new tax law affects real estate can be found here. With, finding your vacation home is easier than ever, so start searching today!



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Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

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