The second-home mortgage market makes up only a small percentage of total mortgages, but the share of second mortgages has been on the rise since 2009, according to a recent report from Fannie Mae.
Since 1998, second-home mortgages have averaged about 4.76 percent of the total purchase market, but the share is rising, according to Fannie Mae.
While the purchase market increased four-fold from 1998 through the bubble years, the second-home mortgage market multiplied by 15 over the same years.
The second-home mortgage market did decline significantly during the housing downturn, but today, it’s alive and well.
In fact, while some buyers may be put off by price volatility in some states, second-home buyers are ready to take advantage of bargain prices.
Florida, California, and Arizona—all hard-hit by the housing crisis—have made up 34 percent of second-home mortgages since 1998, according to Fannie Mae. While prices declined at least 40 percent in each of these states during the downturn, second-home buyers are not deterred.
The second-home buyer weathered the financial crisis and ongoing recovery differently than the average homebuyer. For starters, a typical second-home buyer is older and more affluent than the average primary-home buyer.
Second-home buyers are also more likely to pay in cash, and when they do take out a mortgage loan, they offer larger down payments. Sixty percent of primary-home buyers’ loans have loan-to-value ratios greater than 80 percent, while just 30 percent of second-home buyers fall into this category.
Additionally, while the housing market has been slowly recovering, financial assets have shown stronger growth, helping more affluent Americans strengthen their economic status even further.
Through 2060, Fannie Mae expects the population of adults ages 45 through 64 to grow at a slower pace than that of the overall adult population in the United States. However, “assuming that Americans continue to follow similar investment patterns as they age and that aspirations of second home ownership do not wane, second homes should still occupy a significant place in the residential real estate market,” according to Fannie Mae.
The GSEs are currently major players in the second home mortgage market, originating about 60 percent of second home mortgages in 2013. The GSEs stepped up their share of this segment of the market during the crisis years when private label securities stepped back, but the GSEs have been shedding market share over the past few years.