Amid limited inventory, elevated mortgage rates, and less demand for short-term rentals, second-home mortgage-rate locks are floating near their lowest level since 2016.
Down 52% from pre-pandemic levels on a seasonally adjusted basis, mortgage-rate locks for second homes are on the decline, according to a new Redfin report. Compared with primary homes with a 13% decline in rate locks, the loss in demand is dropping as potential second-home buyers have been priced out of already more expensive markets.
In 2022, the typical second home was worth $465,000 compared with a primary home at $375,000. Increased loan fees imposed by the federal government on second homes in April 2022 has also added pressure.
“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,” says Taylor Marr, Redfin deputy chief economist. “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.”
In August 2020, mortgage-rate locks for second homes hit a peak of 89% above pre-pandemic levels. The peak—fed by low mortgage rates, travel limitations, and remote work—is when many affluent Americans bought second homes. The demand has fallen drastically as workers are returning to the office and second homes become less attractive because there’s less free time to spend in them.
As owners of short-term and long-term rentals are reporting declines in business, purchasing a second home to rent out is also becoming less appealing, Redfin data reports. As many people became vacation rental hosts during the pandemic, the market became saturated with rental options. Short-term rental regulations through local governments are also dampening the intrigue.
Because second homes are not a necessity, second-home buyers are more likely to pull out of the search than primary home buyers. With stock market declines and a shaky economy, second-home buyers potentially have less cash on hand for down payments and monthly payments as well.
“It’s mostly affluent cash buyers who don’t have to worry about high rates,” Phoenix Redfin agent Van 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.”
