Many people with the means and desire to buy a second home have already done so.
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During the onset of the pandemic, the flexibility to work remotely coupled with record-low interest rates had many home buyers toying with the idea of moving to vacation home markets as shifting priorities and preferences altered where and how people wanted to live.
Vacation home sales skyrocketed during the second half of 2020 and through 2021. Page views of for-sale listings soared in metro areas typically considered vacation destinations, such as the Jersey Shore area; Myrtle Beach, South Carolina; Key West, Florida; Lake Tahoe, Nevada; Cape Cod, Massachusetts; and Park City, Utah.
Today, it’s a different story. A scarcity of new listings, elevated mortgage rates, still-high home prices and persistent inflation, among other economic woes, are holding back demand for both primary and second homes, according to a new report from Redfin.
A variety of factors are causing the huge drop in second-home demand:
- Many potential second-home buyers are priced out because it’s frequently more expensive to buy a vacation home than a primary home. The typical second home was worth $465,000 in 2022, versus $375,000 for a primary home. Additionally, the federal government increased loan fees for second homes in April 2022.
- Vacation-home buyers are quicker to pull back from the market than primary-home buyers because second homes aren’t a necessity.
- Workers are returning to the office. Second homes are less attractive when there’s less time to spend in them. While working from home is more common than it was before the pandemic, the share of job openings that allow remote work has shrunk since early 2022.
- Buying a vacation home to rent it out is nowhere near as attractive as it was during the pandemic home buying and investing boom. Owners of short-term rentals are reporting a steep decline in business. That’s because many people became vacation-rental hosts during the pandemic, which led to oversupply. Many local governments are also instituting new short-term-rental regulations, like new taxes and stricter permitting. The long-term rental market is also cooling.
- Bank accounts are shrinking as stock markets decline, so would-be buyers have less cash on hand for down payments and monthly payments.
- Many people with the means and desire to buy a second home have already done so, during the pandemic home-buying boom of 2020 and 2021.
“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,” said Redfin deputy chief economist Taylor Marr. “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.”
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Jacob Channel, senior economist for LendingTree, agrees. He said, “Ultimately, it’s not surprising that demand for vacation homes has fallen so far from pre-pandemic levels. After all, with mortgage rates as high as they are and with home prices still relatively steep in many parts of the country, buying a vacation home is unlikely to be an affordable endeavor for most. This, combined with the fact that the economy is slowing and a recession appears increasingly likely in the near future, mean that most people probably aren’t going to be particularly keen to stretch their budgets in order to buy a second house.”
Channel added, “Buying a home in today’s market, be it a first or a second house, is going to be tough for most people. And, given that a second home is far from necessity, it makes sense for people to cut back on buying them.”
But there are still some second-home buyers out there, especially in popular vacation destinations. Phoenix Redfin agent Van Welborn said some buyers are looking for vacation condos, especially in desirable neighborhoods.
“It’s mostly affluent cash buyers who don’t have to worry about high rates,” 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.”