Anyone keeping an eye on Florida mortgage loan activity also has to keep an eye on baby boomer activity. How come? Because this older segment of the population has always kept the housing market in the Sunshine State strong.

That’s why this is sobering news: The rate of second home ownership among 50- to 60-year-olds has remained flat during the 12-year period between 1992 and 2004, according to a report sponsored by Radian Group Inc. and the Research Institute for Housing America of the Mortgage Bankers Association.

Early boomers were no more likely to own a second home than older generations of homeowners. Those who did take out a Florida mortgage on a second home are using the residence on a limited basis, too: One-half spend two weeks or less and two-thirds spend four weeks or less per year in their second home, the report found.

Using Retirement Money Now on a Vacation Home Can Pay Off

About 12% of second home owners said they intended to sell their main home and eventually use their second home as their primary address - debunking speculation to the contrary.

The study, “Housing Trends Among Baby Boomers,” was conducted by Gary V. Engelhardt and released during the MBA’s annual convention Monday in Chicago.

Information for the report was pulled from a variety of sources, including U.S. Census Bureau information and the 2004 Health and Retirement Study, which is funded by the National Institute on Aging.

“There have been relatively few scientific studies on second home ownership and mortgage activity,” Doug Duncan, MBA’s chief economist and senior vice president of research and business development, said in a news release. “The report indicates that baby boomers are not acting differently than their parents when it comes to second home ownership. However, the baby boom cohort is so large, even if they follow typical buying patterns, they will have significant impacts on many local housing markets.”

The study found 43 million U.S. households headed by someone age 50 or older owned their main residence and 6.6 million homeowners of that age group owned a second home. Those second homes were often located in well-known vacation areas, such as Florida.

A study such as this contributes to the notion that Florida mortgages may slide through the next year or two.

Great Britain is America’s good friend across the Atlantic. Nowhere is this more the case, however, than in the Sunshine State, especially if the issue at stake is a Florida home mortgage.

Of the state’s 76 million visitors last year, England represented the largest single overseas nationality - approximately 4.3 million - with more than 150,000 of these blokes on the lookout for a holiday or vacation home.

Now, however, the second home market for Americans and Brits alike is dissipating. After five years of record Florida home mortgage growth - between March 2001-2006, the statewide median house price rose 104% - and double-digit annual capital gains, our state had been one of America’s fastest-moving property markets. But today, the bottom has fallen out of holiday home rentals and, despite a weak dollar and a glut of available properties, British buyers are turning their backs on Florida.

Second Florida home mortgage sales down

The Florida Association of Realtors said last month that local sales of existing single-family homes and condominiums have been in a double-digit freefall for six months. One British-based agent, who insists on anonymity, admits that he hasn’t sold any Florida properties for months.

“The market is completely flat,” he says. “It is undergoing correction. Houses were built so quickly and prices went up so quickly that it is only natural that they would calm down a bit. It is certainly a buyers’ market at the moment.”

So, what has gone wrong? It’s a combination of bad weather, America’s worsening reputation abroad, rising Florida home mortgage costs, and sheer greed. For the rising number of international buyers who now want to get out, it’s a mix that is creating headaches now the euphoria of owning what appeared to be their dream home has worn off.

Escalating fuel surcharges on airline tickets have added to the uncertainty, raising the prospect of future rises in fares. It hasn’t helped that British Airways is at the centre of an investigation by the Office of Fair Trading and the US Department of Justice, amid allegations of a fare-fixing cartel.

The rising costs of owning in Florida

Statewide, utility and home insurance bills have been driven sky-high by hurricane after hurricane: 16 swept through the Caribbean and Gulf last year and the first storm of the 2006 season hit in June. Their trails caused massive hikes as the insurance and power companies attempt to recoup the losses sustained during particularly bad seasons.

Florida mortgage rate hikes aren’t helping, either. The 17 Federal Reserve rises since June 2004 mean the rate of interest on a typical 30-year fixed rate mortgage is now 6.76%, up from just over 4% when the round of rises began.

Meanwhile, investors who had hoped to make swift profits find their money tied up in property they can’t sell without slashing the price; British buyers, lured in by claims of big holiday-rental profits, find there are too many properties chasing too few leads. The market is awash with holiday-home bargains. Those bubble sitters that are waiting for prices to fall in order to swoop in with a Florida home mortgage loan may have the right idea.

“We are still going through a stare-down between buyers and sellers,” says Jack McCabe, chief executive of McCabe Research and Consulting, a property consultancy based in Deerfield Beach. He warns the situation will worsen. “It’s the tip of the iceberg for both the Orlando market and the south Florida market.”

“The Florida market has had its day for the time being,” says Bill Blevins, managing director of Blevins Franks International, an independent firm providing tax and investment advice. “Prices are not just levelling off, but in many cases developers are jittery to the point of making deals that would not have been available a year ago, and with the US dollar at current levels, this may be an opportunity to buy for anyone who wants to hold the asset for the longer term.”

Blevins echoes the sentiment that a buyer hoping to turn a profit after a couple years shouldn’t consider a Florida home mortgage right now. It’s too risky to be in the short-term.

Therefore, depending on your point of view, it’s not all bad news. For opportunistic investors with the time, money and patience to buy in for the long haul, there are bargains to be had, while the real bottom-feeders are still waiting for further price drops.

“I have just been contacted by five of the largest hedge funds in America, and they are all interested in the opportunity to buy distressed properties,” says McCabe.

The jackals — or should that be alligators — are closing in.

There’s undoubtedly a discrepancy is the housing market. While an abundance of residents are filing for foreclosure because they are feeling squeezed by their Florida home loans, others are looking beyond a primary residence.

A new survey from HomePages.com reveeals a large percentage of second home buyers would as soon fly as drive to reach their vacation homes, emphasizing the fact that the location of these properties can be almost anywhere. Florida certainly has its fair share of them.

Inside the second Florida home loan market

With plenty of disposable income to spare, 21 percent of 1,300 consumers surveyed said they are considering purchasing a second home within a year, while another 42 percent say they’re considering buying within the next two to six years. This housing market is having no trouble whatsoever.

Overall, “vacation and investment homes remain a strong and prominent part of the real estate market, both as a means of providing an escape and providing supplemental short-term and long-term income,” says Ian Morris, chief executive officer of HouseValues.
Other results of the poll include:

- A quarter of respondents said they are considering a Florida home equity loan for a vacation house investment purposes, while 22 percent said they wanted one for “enjoyment,” such as weekend getaways, vacations and family use.

- Forty percent of respondents said features such as water or mountains would not be a factor because they intended to buy for investment purposes. Among those who do consider geography an important factor in where they buy, 36 percent listed proximity to water as key, followed by mountains (17 percent), golf courses (5 percent) and the desert (2 percent).

- Asked what factor would most likely cause them NOT to buy a second home, 32 percent of respondents listed rising home prices, followed by rising mortgage rates (18 percent) and job insecurity (12 percent).

Ownership of more than one home is increasingly common, notes NAR, due to peak earnings of the baby boomer segment of the population, less-than-stellar returns in other financial assets other than real estate, and popular tax incentives (including capital gains exclusions), along with Florida home loan programs that favor buying property over other investment instruments.

Those thinking of expanding into this market ought to consider a Florida home equity loan for the purposes of the transaction.

Catering exclusively to second-home buyers, a Birmingham, Michigan-based home loan provider with operations in Florida, is expanding its fractional home loan program.

Bob Waun, CEO of Vacation Finance, told Crain’s Detroit Business that the improved rates and terms if his unuique program will make it successful.

“The fractional business is booming, it makes good financial sense for the home buyer, they can own multiple homes at the price of just one cottage,” he said. “There are fractional projects popping up in every major vacation home market in America, and we intend to to lend to all the best projects.”

Most lenders will not lend to fractional home purchasers because of the complicated effect on real estate title. When a 1/4 share of a condo is sold to the consumer, they receive both a deeded real interest of 25 percent of the property, plus a limited time use right.

“Time use has often carried a ‘timeshare‘ stigma that is rapidly declining because timeshare is now a trillion-dollar industry and widely accepted by the consumer and lending community as a good value,” said J.H. Heck, a Fractional expert at Vacation Finance.

“We have studied the vacation ownership industry and understand the dynamics like no other lender, and we know how to get projects and consumers financed, with less hassles and more loan choices.”

The company is trying to compete where others will not. Presently, the major secondary home loan buyers — Fannie Mae, Freddie Mac and major wholesale mortgage banks — are not interested in buying fractional Florida mortgage loans. This is not expected to change in the near future, but Vacation Finance is undeterred.

“We like the fractional paper because we understand it and the buyers who purchase this niche real estate, it is too small of an opportunity for large lenders, but a trend that is skyrocketing,” Waun said. “The same buyers of fractional real estate, buy fractional aircraft and yachts, and we like these borrowers.”

If you are looking into entering the fractional Florida home loan market, be advised that taking on more than one loan at the same time will stretch your finances thin. Make sure you plan ahead and ensure that you can make the payments, especially if mortgage rates continue their steady rise.

Some of us collect antiques. Diane Pyshos collects houses.

She and her husband have three, according to the Chicago Tribune. Along with their son, they manage to live in all three, which is pretty nice in spite of the clothing or grocery mishaps. Not that she’s complaining. The family loves their existence, split between two homes in Michigan (a mere five miles from one another) and one in Chicago. They’re thinking about — yes — a fourth, in Arizona.

The surprising thing is that a combination of demographic / economic factors is making this commonplace.

“We call them ’supersplitters,’” said Bill Jacobs, a demographic analyst in Seattle, in reference to people who own three or more places.

Jacobs’ firm studied second-home ownership for WCI Communities, a real estate developer in Bonita Springs, Fla., that coined the term “splitters.” The term was created to distinguish the emerging profile of second-home owners from the more traditional “snowbirds,” who most divide their time seasonally. Splitters are likely to bounce around, relatively speaking, between their many properties. Supersplitters, with three or more, take that practice to another level entirely.

The numbers are hard to calculate, as some third properties are strictly investments, others are for personal use and others are a blend of both. There has also been a revival of interest in time-shares and the creation of so-called fractional ownership of properties (like condotels), both of which have Americans thinking about third homes in record numbers. It’s a trend that is changing the multiple-home ownership demographic from only the rich to the “economically comfortable.”

“Income is tilting toward the top end of the scale,” said Peter Francese, a demographer in Exeter, N.H. “One-fifth of all households take home 50 percent of the money in this country. So multiple homeowners might have a ski condo in the winter, a summer place on a lake and a regular house that they live in the rest of the time. It’s a small segment, but significant. We were surprised at the incidence rate. It was higher than we expected.”

A national study of 1,743 homeowners found that 20 percent own a primary residence and second home, while nine percent — the supersplitters — own a primary residence and at least two other homes. The National Association of Realtors estimated about a year ago that about 44 million second homes exist in the United States (made up of approximately 7 million private vacation homes and 37 million investment units).

The Realtors said that of the people who bought second homes in 2004, 38 percent said they’d likely purchase another home within two years.

“It’s absolutely a real phenomenon,” said Francese, founder of American Demographics magazine. “There are a lot of reasons why it’s happening. An awful lot of people are skittish about the stock market, but real estate, that’s viewed in the general public as a sure thing.”

Indeed, the biggest force behind third-home ownership has been mortgage rates, which until recently have been at record lows. Then there’s a crop of baby boomers who not only are in their peak earning years, but who also flush with home equity from their primary residences and looking for a place to put it. They’re also in the position where the second homes they buy may also double as retirement destinations. Expanded routes and lower air fares have also put more destinations within reach, while telecommuting makes it possible to extend time at getaway spots.

Pyshos and her husband, for example, conduct their businesses at home. She is a mortgage broker, and he’s an architect. With the exception of weekly 90-minute drives to their Chicago house for client meetings, they work out of their Michigan residence(s). While having two homes within five miles of each other is unusual, figures find that supersplitters are likely to have at least one of their second homes. A familiar arrangement is a family that has a suburban home, a condo downtown and a third place at a beach or lake area within a few hours’ drive.

But does this trend have growth potential?

“I think there’s going to be a backlash, in terms of second and third homes. People are going to understand that owning these things is a lot of work,” said Brooke Warrick, a market researcher whose California firm, American Lives, studies consumer behavior for the real estate industry.

So if you’ve been thinking about taking out a Florida home equity loan and turning that into a second or third vacation property, you certainly are not alone. If you can swing it financially, great, but think long and hard before you get hamstrung by rising rates and difficult upkeep.

Record breaking second home sales

Looking for another Florida home loan? Buyers certainly were last year. According to the National Association of Realtors, sales of vacation homes and investment homes set new records in 2005, with the combined total of second-home sales accounting for four out of 10 residential transactions.The annual report, based on two surveys, shows that 27.7 percent of all homes purchased in 2005 were for investment and another 12.2 percent were vacation homes. All together, there were 3.34 million second-home sales in 2005, up 16 percent from an upwardly revised total of 2.88 million in 2004.

David Lereah, NAR’s chief economist, says all the factors at play in the second home market were favorable in 2005.

“To begin with, the baby boom generation is driving second home sales – they’re at the optimum point in life when people become interested in second homes, they’re at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments,” Lereah says.

There are significant motivational differences between vacation-home buyers and investment buyers, he adds.

“Vacation-home buyers are making lifestyle choices and purchasing primarily for their own enjoyment,” he says. “Investment-home buyers are seeking rental income and portfolio diversification, although vacation-home buyers also mentioned diversification.”

Factors behind record breaking sales of second homes

What factors are driving second-home purchases? For vacation-home buyers, 41 percent plan to use the property for vacations; 31 percent to use as a family retreat and 28 percent to diversify investments, according to an NAR survey.

The median price of a vacation home in 2005 was $204,100, up 7.4 percent from $190,000 in 2004. The typical investment property cost $183,500 last year, up 24 percent from $148,000 in 2004.

Meanwhile, a small minority of individuals are not satisfied with just one Florida home loan: Four percent of all home owners hold three or more properties; 11 percent own two properties.

Background of second home owners

More than three-fourths of vacation-home buyers have no interest in renting their property, and 21 percent say it would become a primary residence on retirement, compared with only 2 percent of investment buyers. Fourteen percent of investment buyers and 6 percent of vacation-home buyers purchased a property that their son or daughter can occupy while in school.

In describing characteristics that vacation home buyers value about their property, the results of this Florida home loan survey were as follows:

• 40 percent want to be close to an ocean, river or lake
• 34 percent close to family members
• 27 percent close to preferred recreational activities
• 27 percent close to their primary residence
• 26 percent close to mountains
• 24 percent close to a preferred vacation area
• 17 percent close to a job or school

Buyers in the South accounted for 30 percent of vacation home transactions, while 38 percent of those taking out a Florida home loan for investment purposes were located in this region.

Future of the second home market

“Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase,” he said.

“On the other hand, investment home sales are likely to decline this year, in part because of higher interest rates,” Lereah says. “There are fewer incentives to speculate in the market with price appreciation cooling in much of the country, and more oversight is being encouraged in the mortgage market. It’s hard to say how much speculation there may be in housing, but it’s probably a single-digit percentage of total home sales.”

NAR survey data shows only 2 percent of homes are sold in one year or less, but investment homes likely are under-represented in that particular reporting sample.

Lereah expects a soft landing for the housing sector in 2006 with existing-home sales declining 5.7 percent to 6.67 million, the third highest on record. “Long term, the outlook for second homes is favorable because more people will be moving into the prime years for buying a second home,” he says.

So go ahead and look into a Florida home loan today. You may be doing the same thing on another piece of property down the line!

If you are thinking about buying a second home this spring, or already have, in the past couple of years, you are most certainly not alone. In fact, you are part of a major real estate market trend, writes Kenneth Harney, a syndicated columnist, in the Los Angeles Times.

The annual number of second homes purchased in the United States doubled between 2000 and 2004 — a boom driven in part by demographics. As baby boomers become flush with large amounts of home equity, they have more opportunities to invest in a second residence. The other factor? Some unexpected tax law changes enacted in the late 1990s.

Keunwon Chung, an economist at the National Assciation of Realtors, has recently studied a vast pool of federal data on hundreds of thousands of second-home closings. When Congress amended the federal tax code in 1997 to allow tax-free gains of up to $500,000 (for married couples) and $250,000 (for single Americans) on the sale of a primary home, Chung observed that “homeowners did not have to buy expensive [replacement] homes anymore.”

Prior to 1997, the only way to avoid capital gains tax was to “roll over” sales gains to progressively larger and costlier homes. The amended tax code, by contrast, allows primary home sellers to buy smaller, less expensive primary residences, while using a portion of the tax-sheltered gain to buy or make a down payment on a second home. Whether it’s for their own use or for investment purposes, many people are doing so.

For example, a married couple making $500,000, tax free, from the sale of their longtime family home — not unlikely with the appreciation rates seen in the South Florida real estate market over the past few years — might use part of the proceeds to downsize into a condo unit, then use the balance to purchase a vacation home an hour or two away. The figures below show just how popular this option has become:

• In 2000, second homes represented just 8.6 percent of all residential mortgages (or 405,000 individual purchases nationwide).
• By 2004, the number of second-home purchases had more than doubled (to 881,000) while market share surged to 14.2 percent.

The primary buyers and sellers are baby boomers with above-average incomes, as purchasers often want to diversify financial assets. Second homes saw an average 55 percent gain in price appreciation between 2000 and 2004, according to Chung, whereas the Standard & Poor’s 500 index declined by 15 percent.
“As an investment choice, the housing market presented an attractive alternative to a stock market that sagged dramatically from its 2000 Internet-boom highs and has only recently begun to recover,” Chung said.

A dozen states have seen exceptionally high rates of purchases and cumulative growth during the last four years, with (you guessed it) the Sunshine State leading the way. Only Hawaii, where nearly one of every three purchases from 2000-2004 was a second home, surpassed Florida. The Florida housing market has been bolstered in large part due to 20 percent of all purchases used as secondary residences or investments.

Arizona (18 percent) and Nevada (17 percent) also saw significant activity, as did Idaho (13 percent), New Mexico (12 percent) and Utah (10 percent). So how long can the second-home boom continue?

“As long as boomers are still in their peak earning years and they can afford some homes for vacation purposes or investment, they will continue to drive housing markets,” Chung said.

So basically, at least another 10 years. While rising Florida home loan costs are likely to quell demand somewhat, don’t expect our state’s prices to plummet anytime soon. As a second-home destination, Florida real estate will likely stay among the nation’s hottest… with prices reflecting that fact.