Among the unexpected impacts of the coronavirus pandemic was the spike in demand for vacation homes.
Consumers working remotely with steady incomes and savings opted to spend their cash on second homes since they could use them more often. Low mortgage rates and rapidly rising home equity that some homeowners could borrow against for a down payment on a second property fueled vacation property sales.
Now several factors are slowing the vacation home market, according to a recent Redfin report. Demand for vacation homes dropped sharply for the second consecutive month in March, according to Redfin, and dipped well-below demand for primary homes. Redfin’s second-home demand index, which is based on mortgage rate locks for second homes, dipped from 70 percent above pre-pandemic demand in January 2022 to 13 percent in March 2022. Demand for vacation homes is still elevated above pre-pandemic levels but is far below the peak of 88 percent more demand in March 2021.
Planning to buy a home in the spring? Some new mortgage rules may affect your purchase.
Rising mortgage rates and higher home prices are two of the main reasons for the slowdown, according to Redfin’s deputy chief economist Taylor Marr. Second homes are a discretionary purchase for buyers, who typically want the house to offer a desirable vacation location and a good financial investment. The stock market dip in recent months may also be contributing to the decline since second home buyers often use stock market profits for their down payment or at least have more confidence in their financial strength when their investments are profitable.
Another factor that may be affecting the slowdown is the return to the office for some employees. Even with hybrid schedules, it can be challenging to carve out time to spend in a second home.
In addition, a 1 to 4 percent fee is now imposed on second home loans purchased by Freddie Mac and Fannie Mae. Redfin estimates that the new fee adds about $13,500 to the cost of buying a $400,000 vacation home, which could be another deterrent to prospective buyers.
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