Redfin Reports Demand For Vacation Homes Is Down More Than 50% From Pre-Pandemic Levels

Rhea-AI Summary

Redfin's report indicates a significant decline in mortgage-rate locks for second homes, dropping 52% from pre-pandemic levels in March. This marks the lowest demand since 2016, with February also showing a steep decline. During the pandemic, second-home purchases peaked at 89% above pre-pandemic marks, driven by low mortgage rates and an influx of affluent buyers seeking vacation properties.

Key factors behind the decline include high mortgage rates, increased loan fees, a cooling rental market, and economic pressures like inflation. The typical second home cost $465,000 in 2022, making it less accessible. With many potential buyers already having purchased during the pandemic boom, current conditions are challenging for new second-home buyers.

Positive

• Some affluent cash buyers remain interested in second homes, anticipating favorable pricing.
• Reduced competition allows those buyers to negotiate under asking prices.

Negative

• Mortgage-rate locks for second homes are down 52% from pre-pandemic levels.
• Second-home demand is at its lowest since 2016.
• High mortgage rates and increased loan fees have deterred potential buyers.
• The cooling rental market diminishes the attractiveness of second homes for investment.
• The typical second home costs $465,000, making it unaffordable for many.

The number of people locking in mortgages for second homes dropped to its lowest level since 2016 in February and remained nearly as low in March

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Mortgage-rate locks for second homes were down 52% from pre-pandemic levels on a seasonally adjusted basis in March, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That is compared to a 13% decline for primary homes.

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.

Second-home buyers are deterred by high rates, newly instituted loan fees, slowing rental market

A scarcity of new listings, elevated mortgage rates, still-high home prices and persistent inflation, among other economic woes, are holding back demand for both primary and second homes.

A variety of factors are causing the outsized drop in second-home demand:

• 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. Additionally, the federal government increased loan fees for second homes in April 2022.
• Vacation-home buyers are quicker to pull back from the market than primary-home buyers because second homes aren’t a necessity.
• Workers are returning to the office. Second homes are less attractive when there’s less time to spend in them. 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.
• Buying a vacation home to rent it out is nowhere near as attractive as it was during the pandemic homebuying and investing boom. Owners of short-term rentals are reporting a steep decline in business. That’s because many people became vacation-rental hosts during the pandemic, which led to oversupply. Many local governments are also instituting new short-term-rental regulations, like new taxes and stricter permitting. The long-term rental market is also cooling.
• Bank accounts are shrinking as stock markets decline, so would-be buyers have less cash on hand for down payments and monthly payments.
• Many people with the means and 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,” said 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, especially in popular vacation destinations. Phoenix Redfin agent Van Welborn said some buyers are looking for vacation condos, especially in desirable neighborhoods.

“It’s mostly affluent cash buyers who don’t have to worry about high rates,” 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.”

Interest in second homes first fell below pre-pandemic levels in March 2022 as mortgage rates rose and the loan-fee increase loomed. To view the full report, including charts and methodology, please visit: https://www.redfin.com/news/demand-down-second-homes-march-2023

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 5,000 people.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230410005100/en/

Redfin Journalist Services:

Ally Braun, 206-588-6863

press@redfin.com

Source: Redfin

FAQ

What does Redfin's report say about second-home mortgage-rate locks in March 2023?

Redfin's report reveals a 52% drop in mortgage-rate locks for second homes in March 2023, reaching the lowest level since 2016.

What factors are contributing to the decline in second-home demand?

Key factors include high mortgage rates, increased loan fees, a cooling rental market, and general economic challenges like inflation.

How much was the typical second home worth in 2022 according to Redfin?

The typical second home was valued at $465,000 in 2022, compared to $375,000 for primary homes.

What was the peak level of second-home mortgage-rate locks during the pandemic?

During the pandemic, second-home mortgage-rate locks peaked at 89% above pre-pandemic levels in August 2020.

What impact do high mortgage rates have on second-home buyers?

High mortgage rates make it more difficult for potential buyers to afford a second home, contributing to reduced demand.