For the second month in a row, mortgages secured for vacation properties were at their lowest since 2016
High mortgage rates, expensive listing prices and lower listing inventory are some factors that have led to the drop in demand. UNSPLASH
Lock-ins for second-home mortgages in the U.S. were down 52.2% from pre-pandemic levels in March, according to a report from Redfin on Monday.
Mortgage rate locks for vacation homes dropped to their lowest level since 2016 in February and didn’t recover in March, when demand for second homes was nearly as low, the report said.
Comparatively, mortgage rate locks for primary homes dropped only 13.1% in March from pre-pandemic levels, which Redfin defines as January and February 2020. The data was adjusted for seasonality.
Several factors are contributing to this low demand, with high mortgage rates, elevated listing prices—vacation homes are typically more expensive than primary residences—and lower listing inventory primarily discouraging people from buying a second home, according to Redfin
Moreover, the U.S. federal government enacted higher loan fees for second homes in April 2022, which initiated the first major decrease in second-home interest since the beginning of the pandemic in March 2020.
“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,” Taylor Marr, Redfin’s deputy chief economist, said in the report. “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.”
Additionally, workers returning to the office is resulting in less desire to own a second home, the report said. Fewer buyers can use their secondary property as a remote office space, and a slowdown in both the short- and long-term rental markets—which many second-home owners entered during the pandemic when demand for rentals boomed, creating an oversaturated market—has diminished the opportunities to rent these homes out.
However, all of this could be good news for cash buyers seeking second homes, as competition is down and there’s no worry about high mortgage rates.
“It’s mostly affluent cash buyers who don’t have to worry about high rates,” Van Welborn, a Redfin agent in Phoenix, said in the report. “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.”