The pandemic-driven second home buying boom is coming to an end, according to a new Redfin report.
Buyers are backing off on purchasing second homes, a much different story than it was this time last year. Rising mortgage rates and the increase in loan fees for second homes are driving the reversal.
According to the report, vacation home demand dropped sharply in March for the second month in a row as mortgage-rate locks for second homes hit their lowest level since May 2020.
Even though demand is falling, it’s still 13% above pre-pandemic levels. Redfin analysts say they expect second home demand to remain above those pre-pandemic levels in the future as many Americans continue to work remotely.
Redfin deputy chief economist Taylor Marr said the pandemic-driven surge in vacation home sales is coming to an end just as mortgage rates are rising at their fastest pace in history, and that’s causing some buyers to back off.
“When rates and prices shoot up so much that a vacation home starts to look more like a burden than a good investment and a fun place to bring your family on the weekends, a lot of prospective buyers have second thoughts,” Marr said. “The new second-home loan fees that kicked in on April 1 were also a deterrent. Plus, some buyers’ down payments — and their nerves — probably took a hit when the stock market dipped over the last few months.”
March also saw primary residence demand growth outpace the demand for second homes for the second month in a row as mortgage-rate locks for primary homes rose 34% from pre-pandemic levels. The report also found primary residence demand to be at the same level since June 2020.
It’s not just mortgage rates impacting buyers’ decisions.
The impending rise in loan fees for second-home loans is also deterring buyers, according to the report Those fees rose 1% to 4% starting April 1, a rise that adds approximately $13,500 to the cost of a $400,000 home purchase. Redfin said these fees will continue to cool vacation home interest in the coming months.