We’re a few days into the summer season and the farmer’s almanac forecasts this one to be a scorcher, with dry heat plaguing most of the country. It’s the perfect time to escape to your lake house or bungalow by the beach, but a recent report from Redfin says demand for vacation homes has fallen below the pre-pandemic baseline for the first time in two years.
Mortgage-rate locks for second homes down 4% from before the pandemic in May, down from a revised rate of 3% above pre-pandemic levels a month earlier, and 70% above pre-pandemic levels a year earlier.
Of course, this mainly has to do with sky-high home prices and mortgage rates shooting up to nearly 6% as well as a slumping stock market. Another deterrent to second-home buyers is the fact that the federal government increased loan fees for second homes in April, adding roughly $13,500 to the cost of purchasing a $400,000 home.
“Skyrocketing monthly payments, along with higher loan fees, have priced many second-home buyers out of the market,” said Redfin Deputy Chief Economist Taylor Marr. “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.”
This drop off in demand for vacation homes is quite the drastic change from the second half of 2020 and 2021, when mortgage-rate locks for second homes skyrocketed due to record-low mortgage rates and the flexibility to work from anywhere thanks to remote work. Demand peaked in March 2021 when it was about 90% above pre-pandemic levels.
Interest in vacation homes began to sharply decline in February once mortgage rate began their ascent. Now the average 30-year fixed mortgage rate sits at 5.81% for the week ending on June 23.