3 Issues That Could Affect Second-Home Sales

vacation home

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The second-home market has gotten a pandemic boost as more buyers look to resorts and vacation hot spots, whether to escape the city, for a more leisurely area to remote work, to generate extra income, or to just simply shelter in. But a few policy changes could threaten to dampen second-home sales over the coming months.

During the virtual REALTORS® Legislative Meetings on Thursday, Russell Riggs, senior policy representative for the National Association of REALTORS®’ Advocacy Group, highlighted three advocacy issues that the association is focusing on that could affect impact the second-home market:

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1. Fannie Mae limits financing.

On Dec. 7, 2020, Fannie Mae modified existing rules for how it finances and invests in second homes and investment properties. Besides placing a 7% limit on Fannie’s acquisition of single-family mortgage loans secured by second-home and investment properties, the rules also restrict the kinds of projects that Fannie will invest in. For example, Fannie Mae announced it would not finance loans with a large number of short-term rentals. Riggs said that Fannie Mae is not completely pulling out of these markets, but it will more carefully scrutinize its financial investments in the second-home market moving forward. NAR has had ongoing discussions with Fannie Mae to understand the full impact of this policy change while conveying its concerns over its potential effect on members and the second-home market. NAR is also looking to build coalitions with other organizations to create an industrywide effort to voice concerns about this policy change, Riggs said.

2. 1031 like-kind exchanges under attack.

The Biden administration has recently proposed a $500,000 limit on deferred gains in 1031 like-kind exchanges. “This could impact all forms of real estate, including investment and resort properties,” Riggs said. “Putting this limitation on these transactions now is bad timing because like-kind exchanges could accelerate our economic recovery from the pandemic by preventing property from being underutilized and underinvested—an important tool in a REALTOR®’s financial toolbox.” NAR plans to share with lawmakers success stories and anecdotes of 1031 exchanges and point to their economic benefits, including promoting job creation, land, and environmental conservation, generating state and local tax revenue, and aiding in retirement savings. NAR has created the Like-Kind Exchange: Myth Busters, to dispel common misunderstandings about this tax benefit, which has existed since 1921.  

3. Looming expiration of the National Flood Insurance Program.

The NFIP is set to expire on Sept. 30. The program provides flood insurance to more than 5 million homeowners in 22,000 communities nationwide. Many of these areas threatened by flooding events are located in second-home or resort areas. The program is billions of dollars in debt and has faced numerous short-term gap measures from lawmakers over the years that have kept it afloat. NAR has advocated for long-term authorization of the NFIP as well as reform of the ailing program. NAR is pushing for increased private flood insurance, mitigation, and improved Federal Emergency Management Agency flooding maps (long the standard that lenders use in determining the need for flood insurance). Riggs has noted progress. For example, last year, a searchable database from First Street called Flood Factor was launched. It provides consumers with information on flood risk information for individual properties and incorporates heavy rainfall events and climate change data. Flood Factor has been integrated into listings data at realtor.com®. (Read more: Don’t Fear Flood Data, Here’s How It Helps Clients)

Riggs notes another area of progress on this issue called NFIP Risk Rate 2.0, featuring a new federal flood insurance rate structure designed by FEMA to modernize the NFIP’s insurance pricing methodology and more accurately tie its rates to the flood risks of individual properties. In a meeting with NFIP Chief Executive David Maurstd in March, NAR leaders said that Risk Rating 2.0 represents the first significant update to NFIP rating methodology in nearly five decades. New rates take effect Oct. 1 for new and existing NFIP policyholders who may want to opt in earlier to see a decrease in their premiums. All other existing policyholders would receive the new rates on April 1, 2022.

Follow all of REALTOR® Magazine's coverage of the REALTORS® Legislative Meetings at magazine.realtor/live.