With borrowing rates rising, the boom in buying second homes may be waning.
March Demand for Vacation Homes Dropped to Lowest Level since May 2020
For the second straight month, buyers backed off from the pandemic-inspired second home boom. Why? Increasing mortgage rates plus an increase in loan fees for second homes.
Demand for second- or vacation homes still remains +13% from pre-pandemic levels due primarily to remote work becoming a mainstay in the lives of many American workers. However, it appears the winds of change are dampening second-home purchases.
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Taylor Marr, Redfin’s Deputy Chief Economist, said, “The pandemic-driven surge in sales of vacation homes is coming to an end as mortgage rates rise at their fastest pace in history, causing some second-home 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.”
Demand for Primary Homes Outpaced Demand for Second Homes in March 2022
Demand for primary homes has remained relatively constant since June 2020. That constant demand rate has been sitting at +34% above pre-pandemic levels since March 2022, according to Redfin.
Demand for second homes in March, as in February of this year, came back to earth at +13% above pre-pandemic levels from its stratospheric level of demand of +88% in March 2021.
This sharp decline in demand coincided with two second home “deterrents”… interest rates raced up to 4.67% by the end of March and some workers began returning to their on-site offices.
Additional Loan Fees
As of April 1, loan fees on second home purchases, typically higher than loan fees on primary homes, increased an additional 1% to 4% depending on the state.
This shift to higher loan fees means that the cost of buying a $400,000 home for a typical second- or vacation home buyer now costs an additional $13,500.
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Thanks to Redfin.