Feel bad for the second home buyers

[NaN]

https://www.wsj.com/articles/vacation-home-buyers-propped-up-the-mortgage-market-now-they-face-a-test-11617269402

The number of buyers who locked in mortgage rates for second homes in February was up 93% from a year earlier, far outpacing the 32% climb for primary residences, according to real-estate brokerage Redfin Corp.
..
The new restrictions say that no more than 7% of the mortgages that lenders sell to Fannie or Freddie can be tied to second homes or investment properties.
..
Matthew Smith, a wholesale insurance broker from Essex, Conn., recently had his offer accepted on a vacation home in Vermont.
But the mortgage rate turned out to be higher than he expected. When Mr. Smith got preapproved, he thought he would be able to get a 30-year fixed mortgage at the going rate in the low 3% range. But his mortgage lender told him that because of the curb from Fannie and Freddie, the best he could get was 3.875%.

He still plans to go ahead with the purchase, but the higher rate will cost him an additional $45 a month. “That extra amount of money I have to come up with does take away from the ability to fix up the house,” he said.

BOOHOO. A higher interest rate for your second home is costing you $45 PER MONTH. This is absolutely antimustachian, and I would laugh if this didn't contribute to unaffordable housing.

[Fishindude]

If $45 per month impacts his ability to make improvements on the place, he's got no business buying the place.
Hope he doesn't have to replace a roof or furnace, it will bankrupt him.

[DadJokes]

This is absolutely antimustachian, and I would laugh if this didn't contribute to unaffordable housing.

Not to detract too much, but does the buying of vacation homes contribute to unaffordable housing? I would guess that they are very different markets.

I think unaffordable housing is just the result of too many people wanting to live in too little of an area.

[NaN]

@DadJokes , yes, most relevant in a city where second homes are popular and there are enough other industries. If a second home is out on a lake or the boondocks of Texas gulf coast then that second home probably has no bearing on housing affordability. However my city has a lot of second homes and it absolutely drives the property value up in the areas where people want to live. They are taking the limited supply and barely living in them. When we bought our house we toured many houses that were second homes. I imagine this is in the case of a lot of these popular second home areas. So I absolutely think it hurts affordability in these areas.

[Hula Hoop]

I'm from NYC and it's absolutely full of the second (third, fourth etc) homes of wealthy people.  Tons of (mostly) empty apartments means that it's more difficult for normal New Yorkers to buy first homes. 

[TheFrenchCat]

If $45 per month impacts his ability to make improvements on the place, he's got no business buying the place.
Hope he doesn't have to replace a roof or furnace, it will bankrupt him.

Exactly!  We make no where near enough to be able to afford a second house, but I wouldn't blink at a $45 dollar difference in my mortgage. That's nothing compared to what a house can cost you.  We rent an older house in a vacation house area and our landlords have probably spent at least that much on repairs, based on the average cost of things they've had to replace for us.  And that's the minimum fixing up you need to do, they're not trying to make the house fancy. 

[Sid Hoffman]

Not to detract too much, but does the buying of vacation homes contribute to unaffordable housing? I would guess that they are very different markets.

I don't think it should matter if we're talking about real vacation homes: like beach houses that aren't near city centers and where people who work full time normally live. I don't have a WSJ subscription so I can't read past the 4th paragraph of the article, but the article clearly states "city dwellers seeking to escape" which, yeah, that means the vacation homes are off in a rural or semi-rural area. Those properties do not compete with the normal housing market.

[Taran Wanderer]

They compete with the normal housing market for the people that actually want to live and work in those small communities.  Second homes are a huge problem in our rural area, as are short term rentals. Because there are so many homes not occupied by owners or resident renters, it makes hiring difficult for businesses, and it prices low earners out of the market. The lady who cut my hair a couple of weeks ago is living in a tent!

[Zamboni]

^I'll second what Taran wanderer said.

At a minimum, there are still grocery stores, gas stations, restaurants etc. in those "second home areas." Which means that it is a "normal housing market" for all of the families who live there and work in those jobs . . . in some cases, families have been there minding their own business for generations and the location has only recently become a hot spot for second homes.

[iris lily]

One of the drivers of “high” utility rates (relatively speaking, this is flyover country) in our tiny touristy  town in an agricultural araa is: second homes. Or so thye say.

Us weekenders dont live full out in the place so our use of utilities is reduced. That affects overall usage and ultimately cost.

I suppose is city folks buying up the cute little old houses drives up prices as well. But in our case, we are dumping around $200,000 in renovation costs into an old house. Purchase price was $80,000. It will be worth around $185,000 when we are done. So we are improving the town’s housing stock and taking a bath on the property, but that’s ok!

[Fishindude]

Keep in mind that second home owners contribute heavily to your local tax base while using the resources they are paying for very sparingly.
For instance, schools are 60% or more of local real estate taxes in many areas, and second home owners doesn't even use the schools your kids do.   They also only drive on the roads a few days per year, use the utilities very sparingly, etc.     If could be argued that the second home owners are actually keeping the local residents costs down in some cases, by carrying a big part of the local tax burden.

[NaN]

@Fishindude - I see your point, but that's not entirely always accurate. The answer is: "it depends on the local tax regulations". In my city, which is a tourist hot town, 70% of the budget is from tourist taxes, followed by 20% property taxes, and 10% other stuff. Further, a lot of the houses are in areas tourists love and are well kept, from trees trimmed, roads somewhat maintained, and other more regular improvements. I would make a guess that the second-homes are using a good share of their taxes to help them out. What is that exact #? I could not even tell you. But my gut is that it is not a blow-away # they are providing to the rest of the area to make up for schools. If it was, I guarantee you there would be a lot of complaints that they shouldn't be spending money for the local schools when they don't use them. Just to be clear, I am not saying tourists are the problem to affordable housing (they have their own problems: read about Skagway Alaska in the pandemic), as clearly their spending does bring money in locally. It is the second homes bought by very wealthy tourists. My city has tossed around the idea of different taxes, but I doubt they will go very far. Also, to be clear, my city is not a large one. It is a place a lot of people from crowded states are coming to live/visit.

[Bloop Bloop Reloaded]

I just received a $40/month hike in the expenses associated with my investment property courtesy of a state government mandate that we pay for regular testing of this and that. It's basically legislated cartel enabling, ensuring that electricians and plumbers never run out of work.

Anyway, while obviously $40/month is not going to have any material effect on my finances, it's still absolutely targeting a 'soft' target (investors, so often seen as the "bad guy"). I bet if you put a $40/month increase on mortgage payments for the family home you'd get a million whingers whinging about how they need to take that out of little Tammy's lunch money, etc.

It's not something I like - this use of double standards. If someone wants to buy a second home, let her. Money is there to buy things with. If others can't compete to purchase a home then that's just too bad. That's the whole point of a free market. You buy what you can afford.

[former player]

I just received a $40/month hike in the expenses associated with my investment property courtesy of a state government mandate that we pay for regular testing of this and that. It's basically legislated cartel enabling, ensuring that electricians and plumbers never run out of work.

Anyway, while obviously $40/month is not going to have any material effect on my finances, it's still absolutely targeting a 'soft' target (investors, so often seen as the "bad guy"). I bet if you put a $40/month increase on mortgage payments for the family home you'd get a million whingers whinging about how they need to take that out of little Tammy's lunch money, etc.

It's not something I like - this use of double standards. If someone wants to buy a second home, let her. Money is there to buy things with. If others can't compete to purchase a home then that's just too bad. That's the whole point of a free market. You buy what you can afford.

Housing isn't a free market, though, because supply is heavily regulated by the State.

[zolotiyeruki]

I discussed this last night with DW, and she pointed out something that may be getting missed:  The spike in mortgages for "second homes" might not be for second homes per se, but rather, it may be people buying their new home before they move out of their old home.  The last time we moved, our old home hadn't sold yet, and we had to apply for a mortgage on the new home by calling it a "second" home.  Once we sold the old house, we refinanced and rolled in our equity, and now it's a "first home" mortgage.

[AMandM]

I discussed this last night with DW, and she pointed out something that may be getting missed:  The spike in mortgages for "second homes" might not be for second homes per se, but rather, it may be people buying their new home before they move out of their old home.  The last time we moved, our old home hadn't sold yet, and we had to apply for a mortgage on the new home by calling it a "second" home.  Once we sold the old house, we refinanced and rolled in our equity, and now it's a "first home" mortgage.

This surprises me. We bought our current house before even listing our previous house, but we applied for, and got, a primary-residence mortgage because we were going to move as soon as we closed.

[starbuck]

Yea, if the new house is going to be your primary residence, then you qualify for the sweet low-interest 30 year mortgages. Vacation homes by definition aren't your primary residence, so it's a higher interest rate. Same for purchasing a rental property.

I discussed this last night with DW, and she pointed out something that may be getting missed:  The spike in mortgages for "second homes" might not be for second homes per se, but rather, it may be people buying their new home before they move out of their old home.  The last time we moved, our old home hadn't sold yet, and we had to apply for a mortgage on the new home by calling it a "second" home.  Once we sold the old house, we refinanced and rolled in our equity, and now it's a "first home" mortgage.

This surprises me. We bought our current house before even listing our previous house, but we applied for, and got, a primary-residence mortgage because we were going to move as soon as we closed.

[dcheesi]

One anecdote regarding vacation home markets: we were looking at a particular beach town as a possible place for our retirement, in part because the housing was cheap. But in the past few years, two things have happened:

1) a residental (trailer) park was shuttered for re-development, likely into condos that will be mostly vacation homes.

2) most of the older, cheaper houses on the market have been bought up by some rental company and posted on AirBnB as vacation rentals.

The net effect of this (in the absence of any other meaningful development in the area) has been to potentially price us out of that market in our retirement consideration. While everything else about the place is the same (the non-housing CoL and the "character" haven't changed), the housing-cost arbitrage incentive is almost completely gone, which makes counter-incentives (like staying closer to working-age family) more influential. Which of course would mean that our current HCoL area would have one more house still filled in the coming years.

[iris lily]

Keep in mind that second home owners contribute heavily to your local tax base while using the resources they are paying for very sparingly.
For instance, schools are 60% or more of local real estate taxes in many areas, and second home owners doesn't even use the schools your kids do.   They also only drive on the roads a few days per year, use the utilities very sparingly, etc.     If could be argued that the second home owners are actually keeping the local residents costs down in some cases, by carrying a big part of the local tax burden.

True to some extent, certainly for road usage, and garbage pickup. But in my case, it is our municipality that provides electric, gas, etc and they complain about low useage. They are not part of the school system taxation district, so their concerns are not tied to the schools’ concerns. . Plus, each school gets a per-pupil payment from our state, so perhaps NOT having children in school hits the school system in that way (?)

[scottish]

We certainly do.    My brothers and I jointly own the family cottage (build by my parents).    We heavily subsidize the local township with property taxes - 3K/year and all we get is garbage pickup once a week at the township road - 3 km from the property.    I suspect we also subsidize the electrical utility and ISP both of which charge a special premium for remote properties.

However, the township mostly seems to use the cottager's tax dollars sensibly.    They've opened a library and done lots of local road improvements and so on.    So I don't resent the bill...

[JLee]

We certainly do.    My brothers and I jointly own the family cottage (build by my parents).    We heavily subsidize the local township with property taxes - 3K/year and all we get is garbage pickup once a week at the township road - 3 km from the property.    I suspect we also subsidize the electrical utility and ISP both of which charge a special premium for remote properties.

However, the township mostly seems to use the cottager's tax dollars sensibly.    They've opened a library and done lots of local road improvements and so on.    So I don't resent the bill...

No police, fire, EMS, or public schools there?

[scottish]

We certainly do.    My brothers and I jointly own the family cottage (build by my parents).    We heavily subsidize the local township with property taxes - 3K/year and all we get is garbage pickup once a week at the township road - 3 km from the property.    I suspect we also subsidize the electrical utility and ISP both of which charge a special premium for remote properties.

However, the township mostly seems to use the cottager's tax dollars sensibly.    They've opened a library and done lots of local road improvements and so on.    So I don't resent the bill...

No police, fire, EMS, or public schools there?

Policing is provided by the province.

There is a small volunteer fire station in the general vicinity.    No data on how effective they are, i.e. could they get there before the place burnt to the ground?

EMS is also provided by the province, I think.

Public schools.   This is  a good question - could a summer resident send their kids to school there?    In practice, no - it would be difficult to stay there over the winter with a family.    There's no official road maintenance in the winter, sometimes one of the owners will plow the road with an ATV.    Most of the properties pump water from the lake which means cutting a hole in the ice and lugging water up in buckets in the winter.    And we usually get too much snow for a 4wd to get in unless the road has been plowed.