As Interest Rates Rise and Stocks Falter, Demand for U.S. Vacation Homes Takes a Dive

BY VIRGINIA K. SMITH

After two years of a breakneck market for vacation homes across the U.S., demand for second homes has now fallen below pre-pandemic levels, according to a report Friday from Redfin.

“Skyrocketing monthly payments, along with higher loan fees, have priced many second-home buyers out of the market,” Redfin deputy chief economist Taylor Marr wrote in the report. “Many would-be second-home buyers are also deterred by turmoil in the stock markets, high inflation and recession fears, and they can be quicker to pull back from the market because vacation homes aren’t a necessity the way primary homes are.”

In May, mortgage-rate locks for second homes were down 4% from pre-pandemic levels, according to Redfin’s data. That number marks a significant drop from April, when mortgage-rate locks for second homes were 3% above pre-pandemic levels, and May 2021, when they were 70% above pre-pandemic levels.

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Second home demand peaked in March 2021 at 90% above pre-pandemic levels, according to Redfin.

The abrupt turnaround is due to a confluence of factors including rapidly rising mortgage rates and volatile financial markets.

“The cooldown in the second-home market is likely to continue as long as mortgage rates are elevated and the stock market is slumping,” Mr. Marr said.

The federal government also increased loan fees for second homes in April, adding approximately $13,500 to the cost of purchasing a $400,000 vacation home, Redfin noted.Across the U.S., sellers in areas that saw spikes of pandemic-related demand have begun to drop their asking prices, Mansion Global has previously reported, and even the high end of the housing market is beginning to balk at the combination of stock prices falling while interest rates continue to rise.