Homeowners Keep First Homes, Buy Second

By: June Arney: REALTOR® Magazine Online
Many homeowners are using equity in their current residence to trade up; but instead of selling their existing property, they are renting out their first home to generate income in the hopes of selling and turning a big profit in the future.

The trend is evident in the Baltimore area; and an increase in cash-out refinancings not only in the Northeast but also the Mid-Atlantic, California, and Florida suggests that homeowners elsewhere are doing the same.

According to a 2004 survey by the NATIONAL ASSOCIATION OF REALTORS®, 9.4 percent of buyers expected to purchase a second home and retain their current residences. However, there are concerns about the risks of "leveraging up," as doing so can make the housing market more volatile.

"If there are a lot of people speculating in the same way at the same time, it may push prices above where they can stay," says Patrick Lawler, chief economist for t he Office of Federal Housing Enterprise Oversight.

Other problems can occur if borrowers hold interest-only loans and rates significantly rise; or if they fail to take the costs of both mortgages, property taxes, maintenance, and vacancy periods, among other factors, into account.