At the outset of the pandemic in early 2020, demand for second homes soared as those with the means jumped on low mortgage costs and higher savings rates. Like many pandemic-era trends, vacation home sales have plummeted significantly, according to a new housing report by Redfin.
Per its analysis of Optimal Blue market data, Redfin found that mortgage rate lock agreements for March dropped 52% from pre-pandemic levels compared to a 13% decrease for primary houses. This is the lowest level for second or vacation home rate locks since February 2016.
A mortgage rate lock, or rate protection, keeps your interest rate from rising between the time you apply for a mortgage and the time you close on your new loan. This allows borrowers to get the best mortgage rate possible while going through the refinancing or purchasing process. Conversely, if you lock your rate and interest rates fall, you can’t take advantage of the lower rate on a refinance.
Mortgage rate locks for vacation homes peaked in August 2020, when they reached 89% above the average pre-pandemic levels of January and February 2020. March 2023 levels represented a drop of 75% since that high spike, per USA Today.
According to USA Today, mortgage rate locks for second homes were down 49% year-over-year (YoY) in March and have dipped 71% since January 2022. Mortgage rate locks for primary homes have decreased 29% YoY and 35% since January 2022.
Why Has Demand for Vacation Homes Dropped?
Redfin pointed to a number of factors influencing the drop in vacation home sales, some directly determined by post-pandemic factors. Others stem from general economic concerns.
To start, while demand for primary houses remains static, vacation homes are a luxury, not a necessity. While second homes might be an attractive option when economic circumstances are favorable, they may be a riskier purchase when prices, mortgage rates and inflation are high.
Prospective second-home buyers simply don’t have the money for down payments and monthly payments. As Redfin noted, the typical second home was worth $465,000 in 2022, versus $375,000 for a primary home.
“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,” said Taylor Marr, Redfin deputy chief economist. “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.”
Redfin also reported that fewer people are inclined to buy a vacation home to rent out as compared to during the pandemic. As Time noted, the pandemic caused the supply for short-stay and holiday rentals to soar, as wealthier people and investors bought vacation residences and overwhelmed the short-term market.
Vacation homes are still desirable, but perhaps are only affordable to a small number of potential buyers. Redfin didn’t include cash buyers in its analysis — and that group may still be in the enviable position to snag a second home in this economy.
“It’s mostly affluent cash buyers who don’t have to worry about high rates,” Redfin agent Van Welborn said. “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.”
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