Demand for vacation homes is near 7-year lows due to rising housing costs and return-to-office mandates

Mortgage interest rates for second homes are down nearly 50% from pre-pandemic levels, compared to a 33% decline for primary homes.

Mortgage interest rates for second homes fell 47% from pre-pandemic levels on a seasonally adjusted basis in August, compared with a 33% decline for primary homes. August marks the 14th straight month in which second-home demand has hovered at least 30% below pre-pandemic levels, as high housing costs and limited inventory deter potential buyers. Interest rates on second homes hit a seven-year low in February, falling to 52% below pre-pandemic levels.

This is according to Redfin’s analysis of Optimal blue Data. A mortgage rate lock is an agreement between a home buyer and a lender that allows the home buyer to lock in the interest rate on their mortgage for a certain period of time; Nearly 80% of price locks result in buys. See the end of this report for more details on the methodology.

Demand for second homes is also lower than it was a year ago. Mortgage rate locks for second homes fell 19% year over year, which is greater than the 14% decline for primary homes.

The decline in mortgage insurance for vacation homes comes after they skyrocketed during the pandemic, reaching a peak of 88.5% above pre-pandemic levels in October 2020. Wealthy Americans have seized the opportunity to snap up second homes at record low mortgage rates during a period of time when they can… Many of them work remotely from holiday towns. Demand for primary homes jumped during that period as well, but the increase was more modest, reaching a peak of 16% above pre-pandemic levels in late 2020.

Rising prices and loan fees, combined with the diminishing appeal of rental properties, are holding back second home buyers

Mortgage rates rose to a Two decades in August, keeping demand low for both primary homes and second homes. Remaining high home prices, the high cost of other goods and services, an unstable economy, and a lack of new listings are also deterring buyers of both types of homes.

But the decline in demand for holiday homes is greater, due to a variety of factors:

• • Buying a second home is more expensive. A typical home in a seasonal town — where there are many second homes — sells for $564,000, an increase of 5% from the previous year. This compares to $421,000 for homes in non-seasonal cities, also an increase of 5%. Mortgage rates for second homes are also typically higher. Finally, the federal government Increased loan fees for second homes in 2022, often adding tens of thousands of dollars to the cost of purchasing a home.
  • Many workers are returning to the office. The appeal of second homes has diminished as many businesses, including large ones, have downsized Amazon, Apple, Disney, and JP Morgan– Call employees back to the office, at least part of the time.

• Short-term rentals are less attractive. Buying a vacation home to rent out on a short-term rental site like Airbnb may be less attractive than it used to be. Local governments including New York City Real estate companies are introducing new regulations for short-term rentals, such as new taxes and strict permits, that reduce profits and make business more difficult.

• The long-term rental market is cooling. Buying a vacation home to rent out long term is also less attractive. The rental market has cooling From its epidemic peak; Although asking rents remain high, many landlords are forced to offer concessions to attract tenants. Additionally, there are an increasing number of vacancies for landlords to fill, with several new units set to hit the market soon.

Demand for second homes has risen slightly from the bottom it reached at the beginning of the year. This is likely due to lower home prices in some second home hotspots, including… Austin, Texas and PhoenixSome wealthy Americans are investing in vacation homes before prices rise.

Interest on second homes first fell below pre-pandemic levels in April 2022, the month loan fee increases went into effect and several months after mortgage rates began rising.

methodology

The data in this report is from Redfin’s analysis of mortgage rate lock data from the real estate analytics company Optimal blue. It does not include cash purchases. Redfin created a seasonally adjusted index for Optimal Blue data to adjust for typical seasonal patterns and allow for simple comparisons of second home demand before, during and after the pandemic. We define “pre-pandemic” as January and February 2020 and set the index for that period at 100. We used early 2020 as a point of comparison because it provides a baseline for mortgage demand before home buyer activity fluctuated significantly during the pandemic. Any data point above 100 represents second home demand above pre-pandemic levels and any data point below 100 represents demand below pre-pandemic levels. This data is subject to review.

A mortgage rate lock is an agreement between a homebuyer and a lender that allows the homebuyer to lock in the interest rate on a mortgage for a certain period of time, providing protection against interest rates rising in the future. Homebuyers should decide whether they are applying for a mortgage rate for a primary home, a second home, or an investment property. severely 80% From mortgage rate locks leads to actual home purchases.