Would-be buyers deterred by high rates and recession fears, says Redfin
Demand for vacation homes has gone slipped below the pre-pandemic baseline for the first time in two years, with mortgage-rate locks for second homes falling 4% from before the pandemic in May, a Redfin report has revealed.
According to Redfin, demand in May was down from a revised rate of 3% above pre-pandemic levels a month prior and 70% above pre-pandemic levels the previous year.
The tech-powered real estate brokerage pointed to several factors causing this decline. Aside from steep home prices and mortgage rates almost reaching 6%, the Redfin report also attributed the slump in second-home demand to the federal government increasing loan fees for second homes in April. With this increase, second-home buyers would now have to add roughly $13,500 to the cost of purchasing a home valued at $400,000.
“Skyrocketing monthly payments, along with higher loan fees, have priced many second-home buyers out of the market,” said Taylor Marr, deputy chief economist at Redfin. “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. The cooldown in the second-home market is likely to continue as long as mortgage rates are elevated, and the stock market is slumping.”
The fall in demand for vacation homes marks drastic change from the latter half of 2020 and 2021, when mortgage-rate locks for second homes peaked due to record-low mortgage rates and the flexibility to work remotely, said Redfin. Demand was at its highest in March 2021, when it was around 90% over pre-pandemic levels.
According to Redfin, interest in vacation homes began to sharply decline in February of this year, around the same time mortgage rates began to climb. In the week ending June 23, the average 30-year fixed mortgage rate reached 5.81%.
