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Vacation Home Slowdown 2022: It gets tougher to buy a second home

Vacation Home Slowdown 2022: It gets tougher to buy a second home

A new report from Redfin shows that demand for second homes and vacation homes is falling, and they call it an early sign of the housing market slowing down.

The company says that increases in mortgage rates and fees for second home loans are making it more difficult for buyers.

“The pandemic-driven surge in sales of vacation homes is coming to an end as mortgage rates rise at their fastest pace in history, causing some second-home buyers to back off,” Redfin Deputy Chief Economist Taylor Marr said.

“When rates and prices shoot up so much that a vacation home starts to look more like a burden than a good investment and a fun place to bring your family on the weekends, a lot of prospective buyers have second thoughts.”

The slowdown comes after a two year boom in U.S. vacation home purchases that saw an 87 percent increase above pre-pandemic levels in January 2022, according to Redfin.

The Federal Housing Finance Agency also recently announced that it would raise fees charged by Fannie Mae and Freddie Mac on second-home loans.

The fee increase could be an additional will increase between 1.125 percent and 3.875 percent, tiered by loan-to-value ratio. It could add up to $12,000 to a $300,000 mortgage, which is payable upfront or rolled into the loan.

The new pricing takes effect for loans that Fannie or Freddie purchased on or after April 1.

While demand for secondary homes decreased, Redfin said “demand for primary residences outpaced that of second homes for the second month in a row.”

However, they say it’s partly due to the decrease in those buying second homes, since “demand for primary residences” has been about the same since June 2020.

Additionally, the higher mortgage rates are making monthly costs for homebuyers go up sometimes as high as an extra $500 per month, according to Redfin. They say the increasing rates are “driving a sense of urgency to buy before” they go up again, causing potential buyers to back off as their budgets are “exceeded.”

As the housing market remains strained, Daryl Fairweather, Redfin’s Chief Economist, says it may not be all bad.

“Homebuyers may not feel like the market has gotten any easier. That’s because they’re often competing against investors, all-cash buyers and migrants from expensive cities who aren’t as sensitive to mortgage rates,” Fairweather said.

“But there are early indicators that the market is turning, and we expect the softening to become more apparent in the coming weeks, eventually causing home-price growth to slow.”

Mortgage delinquencies rise as foreclosure starts increase by 541%

Mortgage delinquencies rise as foreclosure starts increase by 541%

Mortgage delinquencies are on the rise, and our national delinquency rate has just risen for the first time in 9 months, according to the latest report from Black Knight.

The number of properties that are 60 or more days past due or in foreclosure reached over 1 million nationwide, and foreclosure starts have increased 541% from the same time last year.

Nationwide, there are 1.95 million properties with more than 30 days of delinquency.

A contributing factor to this was a 97,000 increase in early-stage delinquencies. This is when a property is either 30-60 days past due or in foreclosure.

The number of homes in serious delinquency — 90 days or more past due — dipped slightly by about 2,000 loans, but remained at the highest level since 2013.

The largest increases in delinquencies were seen in the Northeast U.S., where rates climbed by 5%, and in the Midwest, where rates increased by 4%. In contrast, mortgage delinquencies fell by approximately 14% in the West and by 1% in the South.

The largest month-over-month increase in two years occurred in the Northeast, and it’s largely driven by the hardest-hit states, including New York, New Jersey and Connecticut.

For example, in New Jersey, early stage delinquencies rose by 56%, and in New York, the rate was up 42%, compared to last year. Connecticut had a 36% increase in early-stage delinquencies.

Black Knight explained that the increase in early-stage delinquencies was driven primarily by “a sharp uptick” among loans that were current just three months ago — particularly those with an initial six-month payment deferral.

Elon Musk Takes Out Risky Adjustable Rate Mortgages on 5 Properties

Elon Musk Takes Out Risky Adjustable Rate Mortgages on 5 Properties

Elon Musk is a well-known entrepreneur and billionaire who is best known for his roles in Tesla and SpaceX.

He has plenty of money, but recently he took out several very large mortgages on five properties in California.

When he borrowed this money, Musk faced some big decisions about which type of loans to go with. There are two options: fixed-rate mortgages or adjustable mortgages.

Fixed-rate mortgages provide the borrower with a guarantee of stable monthly payments.

Adjustable mortgages don’t offer that same benefit, but they do come with substantially lower rates.

Musk chose to take a big risk with his mortgage loans.

Instead of choosing a 30-year fixed-rate mortgage – which would have given him stable monthly payments – Musk chose a hybrid-adjustable loan (ARM).

The Tesla CEO, 49, took out several mortgages worth more than $61 million to buy five adjacent homes in the posh Bel-Air neighborhood of Los Angeles where celebrities like Jennifer Aniston and Kim Kardashian live, according to property records reviewed by Business Insider.

He bought two of the houses – which are located near one another in Bel Air – in 2012 and 2013 for $17 million and $6.75 million, respectively.

Musk bought one of the houses from actor Gene Wilder for $6.75 million, and another from actress Talia Shire for $6.4 million. The other three are located in the Hidden Hills neighborhood of Los Angeles and cost him $24 million combined.

For his new mortgages, Musk secured a floating rate loan with a 3% interest rate for the first six months, which will then increase to 4.5%, according to property records filed with the county recorder’s offices for Los Angeles County, San Mateo County and Alameda County in California.

The loans total $24.6 million from Citibank and $36.3 million from Morgan Stanley.

Musk was able to borrow a high-risk mortgage because he’s a billionaire.

With his wealth, he could afford to take a chance with an ARM mortgage and see his rates go up and payments rise if and when that would happen.

Musk was unlikely to find himself in a position where he couldn’t refinance his loan if needed, especially given his personal wealth and long-established borrowing relationships with major banks.

The typical borrower, however, might not be so equipped to bear the risk of an adjustable-rate mortgage.

The average person would likely find themselves in serious financial hardship if their rates rose — and there’s a good chance they will continue to do so in the forseable future.

 

FHA borrowers hit hard by rising mortgage rates

FHA borrowers hit hard by rising mortgage rates

Rising mortgage rates on FHA loans are driving up monthly payments, making it harder for many to afford.

FHA loans have long been touted as one of the most effective ways for first-time homebuyers to get a mortgage. But with rising interest rates — and a lingering threat of more — FHA borrowers are about to face more pain.

For home buyers, the difference between qualifying for a 3.5% down FHA loan and a 5% conventional loan is significant: about $150 per month on a median-priced home in the U.S., according to one analysis from mortgage data provider CoreLogic.

For people who already have a FHA loan, borrowers will likely see their monthly payments increase due to higher interest rates, which could hurt their financial situation if they don’t have other income streams coming in or an emergency fund set aside in case they lose their job.

If you purchased your home a few years ago, or even just last year when rates were at historic lows, you might be surprised to learn how much higher the rate is today.

The average 30-year rate on FHA-backed loans has risen from 3.97 percent in January to 4.68 percent as of this writing, according to data provided by Ellie Mae, an industry software provider.

That’s a rise of 0.71 percentage points in just six months, and it translates into higher payments for all new FHA borrowers:

$1,429 monthly on a $200,000 loan — an increase of $160 monthly or $1,920 annually

$2,073 monthly on a $300,000 loan — an increase of $239 monthly or $2,868 annually

$2,888 monthly on a $400,000 loan — an increase of $328 monthly or $3,936 annually

Each 1-percentage-point increase in mortgage rates is equivalent to a 10 percent drop in home affordability, according to Trulia.

“FHA buyers are going to get squeezed,” said Jed Kolko, chief economist at Trulia. “They’re going to have higher house payments.”

The rate spike isn’t the only problem facing borrowers with FHA loans right now. Insurance premiums are also expected to rise in coming years — and those increases will hit people who took out their mortgages before the hikes were announced.

The average interest rate on 30-year fixed-rate mortgages increased from 4.20% in March to 4.37% in April, according to mortgage finance agency Freddie Mac (FMCC).

Meanwhile, the average rate on 15-year fixed-rate mortgages rose from 3.43% in March to 3.57% in April.

Just a few months earlier, rates were hovering around 3.5 percent. Homeowners with ARMs are also feeling the pain of higher rates, though the impact will be somewhat less immediate.

The reason for the increase is simple: The Federal Reserve has been raising short-term interest rates as the economy improves and unemployment levels drop.

It’s also winding down its monthly bond purchases that have kept mortgage rates at historic lows.

Demand for Second Homes Declines As Mortgage Rates Rise

Demand for Second Homes Declines As Mortgage Rates Rise

A new Redfin report says the rush to purchase second homes dropped in February to its lowest level since May 2020. Though demand is still up 35% above pre-pandemic levels, the vacation housing market will cool as rates rise.

The Redfin report shows that vacation home purchases dropped 38% year-over-year in February after falling 34% in January and 27% in December. The drop comes as the cost of borrowing rose at an accelerated pace following an increase in Treasury yields due to rising inflation expectations, soaring government debt issuance, and ongoing fears related to the COVID-19 pandemic.

Over the last couple of years, affluent homebuyers have been snapping up vacation properties at an unprecedented rate amid the pandemic and remote work flexibility. Many are moving out of cities and into suburbs and smaller cities or greener pastures in states with lower taxes and a more reasonable cost of living.

Before the pandemic, demand for second and primary homes grew at similar rates. But pandemic lockdowns and the Federal Reserve’s easiest monetary policies on record, coupled with FOMO and low inventory, unleashed a surge in buying panic in beach towns and mountain areas.

Upscale housing markets in Phoenix and Las Vegas saw double-digit increases in demand for luxury vacation homes this past winter compared with a year earlier as snowbirds flocked to warmer climates for COVID-19 respite and remote work escape options during the pandemic lockdowns.

But as rates rise, the market is more unaffordable to potential second home buyers.

Redfin found that demand for vacation homes declined 7% in February compared to January. The percentage of vacation home searches fell from 7% of all searches in mid-January to 5% at the end of February, “a bigger drop than we saw after last year’s election,” said Daryl Fairweather, Redfin’s chief economist.

“With mortgage rates now over 3%, they are starting to affect buyers’ decisions,” Fairweather added. “The slowdown in vacation home searches is a sign that it may be getting harder for many Americans to afford a second home.”

Mortgage rates on vacation homes have risen to 3.37% from 2.88% in January. A 30-year fixed-rate mortgage for a home purchase is now at 3.12%, the highest rate since July 2020.

The report says: “As interest rates climb toward 3%, that market is going to cool off. Affordability has been bolstered by historically low mortgage rates for much of the past year and a half. As those low rates start to disappear, we could see buying power dip and affordability decline once again. But there will be more sellers on the market this spring and summer than last year, which will help offset some of those effects on affordability.”

“With mortgage rates on an upward trajectory again, it’s likely we’ll see a drop in demand as people reassess what they can afford,” said Taylor Marr, senior economist at Redfin. “The future of the vacation home market will depend on how long mortgage rates stay elevated and if there is another round of stimulus that boosts buyers’ confidence.”

“Vacation home buyers have the most urgency about locking in low rates,” Redfin agent Kathleen Plinske said in a statement. “They’re generally wealthier, more stable and more risk averse than people looking for primary homes.”

Rich Dad Poor Dad Author Robert Kiyosaki Predicts Major Housing Crash

The Rich Dad Poor Dad author, Robert Kiyosaki has been in the news lately for saying that a major crash is coming to the real estate market and the stock market due to the debt crisis of China’s largest property developer, the Evergrande Group.

The Chinese developer owes $300 billion in outstanding loans, and their property portfolio looks overvalued to him.

In a Tweet last week, he told his 1.7 million Twitter followers that he expects a massive crash in the near future.

“HOUSE of CARDs coming down. Real estate crashing with the stock market,” Kiyosaki tweeted. “China’s Evergrande Group cannot pay. Valuation of properties fake. Will real estate crash spread to US? Yes,” he said.

“Stocks dangerous. Careful,” he warned in the tweet.

“Giant stock market crash coming October. Why? Treasury and Fed short of T-bills,” said Kiyosaki.

“Gold, silver, Bitcoin may crash too. Cash best for picking up bargains after crash,” he added.

He also told Kitco News last week that this “is going to be the biggest crash in world history.

Kiyosaki has been sounding the alarm for several months now like in June when he tweeted;

“Biggest bubble in world history getting bigger. Biggest crash in the world history coming.”

San Francisco tenants get 6 figure buyout to leave luxury apartment

A San Francisco couple received a record court settlement of nearly half a million dollars for agreeing to leave their luxury apartment of thirty years.

The $475,000 voluntary buyout was paid to a couple in their 60s with teenage children who were paying $12,500 a month for two apartments consisting of seven bedrooms and eight baths with expansive views of the bay, Golden Gate Bridge, and nearby Presidio park.

The settlement is considered the largest in the city’s history, showing what some landlords must go through to evict long-term tenants in a city with some of the strictest rent controls in the nation coupled with soaring market rents.

San Francisco’s tenant laws and rent control ordinances go back to 1979 to alleviate the city’s housing crisis. Landlords can only raise the rent by 1% a year on some properties, and they cannot evict tenants without just cause, such as nonpayment of rent, and they must also pay tenants to vacate

The couple was represented by lawyer, Steven Adair MacDonald.

The San Francisco Gate reported:

“More than 300 tenant buyouts were filed with the San Francisco Rent Board in 2020. MacDonald said average buyouts are $50,000, and they are growing given the difference between market rent and length of tenant residency.”

“Landlord attorneys think it’s an outrage, and on the tenant side, everybody’s excited, they think it’s great,” he said. But MacDonald thinks the landlord is the winner, as he will be able to rent the apartment for $25,000 a month and recoup the buyout amount in just over three years.

“After that, it will be gravy, so it’s a great investment,” said MacDonald.