Is the Second/Vacation Home Market the Next Shoe to Drop?

If residential lenders and housing professionals didn't have enough bad economic news to worry about, they may soon have a fresh set of anxieties: rising delinquencies in the vacation or "second home" market. Obtaining hard numbers on just how many outstanding mortgages are backed by second/vacation homes is not easy -- but one figure is clear: of the $2.8 trillion in Fannie Mae loan guarantees 5% cover the sector, or $140 billion. According to Freddie Mac spokesperson Sharon McHale, 9% of her GSE's portfolio includes second homes, including "investment properties" where the owner is trying to make his mortgage payment by renting out a home or condo. No one is saying that property values in the second home business are in a freefall, at least not yet, but according to recent interviews with Realtors who sell beach properties the outlook borders on grim. Diana Silvester, a Realtor who sells properties in Cape Cod, Mass., told National Mortgage News that home values in this popular New England vacation area are down 20% in two years. (For the full story see the upcoming issue of Origination News.)