Sales of U.S. Vacation Homes Slow to Lowest Level Since May 2020
After close to two years of voracious buying, the run on vacation homes in the U.S. has started to slow.
Although the demand for second homes was 35% higher than pre-pandemic levels in February, it was notably down from January, when demand was up 87% since that time, according to a report Tuesday from Redfin. Last month’s demand reached its lowest level since May 2020.
In addition, February was the first month since March 2020 that demand for primary residences, up 36% from pre-pandemic levels, was greater than that for secondary residences, the data showed.
“Rising mortgage rates, combined with rising home prices, are hitting the second-home market much harder than the primary-home market,” Daryl Fairweather, chief economist at Redfin, said in the report. “That’s largely because vacation homes are optional. People don’t need a second home, but they do need a place to live.”
However, Ms. Fairweather stressed that interest in second homes has slowed, not stalled.
“Still, people are buying up vacation homes more than they were before the pandemic, as work remains more flexible than it used to be,” she continued.
Indeed, the average 30-year mortgage rate hit 3.92% in mid-February, significantly higher than the 2.65% low reached in the beginning of 2021, according to the report.
Additionally, high prices and low inventory in seasonal destinations—where many second homes are found—may be putting off buyers. Median home prices in such towns surged 20% annually in February, reaching $513,000, while inventory was down 29%, according to Redfin data.
“The fact that home prices are up and inventory is down even though second-home demand is declining suggests that some workers with permanently remote jobs may be relocating to vacation destinations rather than purchasing second homes, and that investors are interested in seasonal towns,” the report said.
Furthermore, demand for vacation homes is likely to slip more, as the Federal Housing Finance Agency announced fees for second-home loans will increase by about 1% to 4% starting in April. That would add about $13,500 to the cost of purchasing a $400,000 home, the report said.
For the report, Redfin looked at seasonally adjusted mortgage-rate lock data from real estate analytics firm Optimal Blue. A mortgage-rate lock is an agreement between a lender and a buyer that freezes an interest rate for a specified amount of time. Home buyers specify what kind of house they are buying, whether it’s a primary residence, a second home or an investment property, and about 80% of mortgage-rate locks result in a purchase.
The report did not break down demand by region or indicate how many markets were part of the analysis.