Second homes will become more expensive despite low interest rates
It becomes a little more expensive to take out a mortgage. This week, Freddie Mac said the average interest on a 30-year fixed-rate mortgage has climbed to 3.22%, which is still very low. But around the same time last year, that rate was at an all-time high of 2.65%.
For those who are looking for a second home, the costs increase even more, thanks to higher fees coming in a few months.
Demand for second homes has exploded over the past two years as new remote workers seek more space and better landscapes.
It’s not just the pandemic, said Daryl Fairweather, chief economist at Redfin.
“We have seen a long term trend of increasing second home purchases,” she said. “I think part of it goes with the inequality of wealth among the rich who get richer and can buy more second homes.”
Soon they will have to pay a little more for these houses. This week, the Federal Housing Finance Agency announced that it was increasing the upfront fees for second home loans sold to Fannie Mae and Freddie Mac by about 3.9% from April.
Redfin estimates that it will cost a typical buyer $ 13,500 more for a $ 400,000 home. Fairweather said regulators could try to figure out what could be an emerging housing bubble.
“If a lot of people buy second homes with the belief that it is a great investment because the value will only increase, it can turn into bubble behavior,” she said.
Fees will also increase on some high balance loans, except for first-time buyers. Fannie and Freddie are on a mission to make home ownership more affordable, said Guy Cecala of Inside Mortgage Finance.
Supporting the second home market doesn’t really help.
“They should be focusing their resources on low and moderate income borrowers, and that’s the reason they’re doing it,” he said.
Demand for second homes is expected to remain high, according to Dean Tucker, mortgage broker in Boise, Idaho.
“I don’t think it’s going to slow this market down. Buyers of a second home are generally better off, ”he said. “And if it’s the cost of a second home, it’s the cost.”
Buyers can still borrow in the private market. And a lot of them don’t even need a mortgage – they pay cash.