When the pandemic hit, vacation sales soared until mortgage rates rose and fewer owners listed their homes. The result: Second-home mortgage-rate locks are down 52%.
SEATTLE – Due in part to higher mortgage rates, it’s a difficult time to buy a second home.
In March, rate locks for second homes were down 52% compared to pre-pandemic levels, according to a report from Redfin. For primary homes, the decline was only 13%.
Second-home rate locks fell to their lowest level since 2016 in February and remained nearly as low in March.
The drop in second-home demand follows a meteoric rise during the pandemic homebuying boom. Mortgage-rate locks for second homes reached a peak of 89% above pre-pandemic levels in August 2020. At that time, many affluent Americans bought homes in vacation destinations, encouraged by low mortgage rates, remote work and limitations on traveling from place to place.
In some cases, Americans likely to buy a home today might have seen an opportunity when mortgage rates were so low and they suddenly had the option to work from home. As a result, rising 2020 and 2021 vacation-home sales likely dented current sales.
A scarcity of new listings, elevated mortgage rates, still-high home prices and persistent inflation, among other economic woes, are also holding back demand for both primary and second homes.
Factors causing an outsized drop in second-home demand
- Home prices: Many potential second-home buyers are priced out because it’s frequently more expensive to buy a vacation home than a primary home. The typical second home was worth $465,000 in 2022 versus $375,000 for a primary home.
- Loan fees: The federal government increased loan fees for second homes in April 2022.
- Flexibility: Vacation-home buyers pull back quicker than primary-home buyers because second homes aren’t a necessity.
- Return-to-work rules: While working from home is more common than it was before the pandemic, the share of job openings that allow remote work has shrunk since early 2022.
- Drop in rental demand: Buying a vacation home to sometimes rent out isn’t as attractive as it was. Owners of short-term rentals report steep declines in business because many people became vacation-rental hosts during the pandemic, and that led to oversupply.
- Stock market drops: Bank accounts are shrinking as stock markets decline, so would-be buyers have less cash on hand for down payments and monthly payments.
- Accelerated demand: Many people with the means and a desire to buy a second home have already done so during the pandemic homebuying boom of 2020 and 2021.
“With housing payments near their all-time high, a lot of people can’t afford to buy one home right now, let alone a second,” says Redfin Deputy Chief Economist Taylor Marr. “Add the recent increase in loan fees, inflation, shaky financial markets, the end of pandemic-related financial stimulus and many companies calling workers back to the office, and it’s simply a challenging time for most Americans to buy a vacation home.”
But there are still some second-home buyers out there. “It’s mostly affluent cash buyers who don’t have to worry about high rates,” says Phoenix Redfin agent Van Welborn. “They’re motivated to buy now because they think they can get a vacation home for under asking price – and in some cases, they’re right. There are fewer buyers looking to buy properties to be used as short-term rentals, though, as they’re finding that the market is saturated.”
© 2023 Florida Realtors®
©Florida Realtors®
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