Vacation home boom comes to an end as mortgage rates and loan fees rise
TAMPA, Fla. (WFLA) — Effective April 1, the Federal Housing Finance Agency increased upfront fees for loans to purchase second homes. The fee increase was announced in January. Real estate firm Redfin said the higher fees are discouraging purchases, which could help cool the market amid a housing shortage.
The FHFA announced in January that the fees were specifically designed to “minimize market and pipeline disruption.”
“These targeted price changes will allow the Enterprises to better fulfill their mission of facilitating equitable and sustainable home ownership, while improving their regulatory capital over time,” said acting director Sandra L. Thompson on January 5. “Today’s action represents another step FHFA has taken to build business safety and soundness and ensure access to credit for first-time homebuyers and low- and moderate-income borrowers. .”
Now, Redfin Reports demand for second homes and vacation homes is down, which they call a harbinger of market calm. The property company said rising mortgage rates, which are now approaching 5% for 30-year fixed-rate mortgages, and rising fees for second-home loans, are adding to the slowdown for buyers.
“The pandemic-induced surge in vacation home sales is coming to an end as mortgage rates rise at their fastest rate in history, forcing some second home buyers to back off,” the statement said. Redfin’s deputy chief economist, Taylor Marr. “When rates and prices rise so much that a vacation home starts to look more like a drag than a good investment and a fun place to bring your family for the weekend, many potential buyers have second thoughts. “
While demand for second homes has fallen, Redfin said “demand for primary residences exceeded that for second homes for the second month in a row.” However, they say this is partly due to fewer second home buyers, as “primary residence demand” has been about the same since June 2020.
Recent increases in interest rates set by the Federal Reserve have led to higher mortgage rates. Redfin says this is driving demand down “sharply” as workers return to the office instead of working remotely. This month’s new fees for second home loans also added “about $13,500 to the cost of buying a $400,000 home”, keeping vacation home buyers waiting to pull the trigger.
The housing market is a major concern for the Federal Reserve as it develops a strategy to combat the impacts of inflation on the US economy and average households. In March, Federal Reserve Governor Christopher J. Waller addressed the Alrov Institute and the Rutgers Center for Real estate, with real estate one of the main topics of discussion, following the first of seven total rate increases scheduled for 2022.
“Real estate makes a significant contribution to gross domestic product, both investment in housing and consumer spending on housing services, what tenants and landlords pay for housing and the amenities provided by the housing,” Waller said. “Real estate also matters for inflation. Housing services make up about 15% of the personal consumption expenditure price index, and they make up an even larger share of another well-known inflation gauge, the consumer price index.
During his speech in Alrov, Waller noted that rent is “a significant part of monthly expenses for many households,” but especially for low-income households, which spend a larger portion of their monthly budget on housing. He said rising rental rates are hitting those lower-income households in the United States the hardest, as inflation pushes the prices of everything up.
Additionally, higher mortgage rates drive up monthly costs for homebuyers, sometimes up to $500 more per month, according to Redfin. They say rising rates “give a sense of urgency to buy before” they go back up, forcing potential buyers to back off as their budgets are “stretched”.
While the housing market remains tight, Daryl Fairweather, Redfin’s chief economist, says all may not be so bad.
“Homebuyers may not feel the market has gotten any easier. This is because they often compete with investors, cash buyers and migrants from expensive cities who are not as sensitive to mortgage rates,” Fairweather said. “But there are early indicators that the market is turning, and we expect the slowdown to become more apparent in the coming weeks, eventually causing house price growth to slow.”
In the meantime, the current federal mortgage rate reported by Freddie Maca government-backed mortgage institution, was 4.72%.
The rates on their site are updated every Thursday. On April 12, the latest Consumer Price Index, tracking inflation in the United States, will be released, giving an indication of exactly how much the prices have increased over the past month for consumer goods and expenses.