The hottest segment of the pandemic’s once scorching housing market is going cold.
The trend of high demand for vacation homes led by a rise in remote work and low mortgage rates has reversed, according to a new Redfin report.
Mortgage-rate locks for second homes were down 52% from pre-pandemic levels on a seasonally adjusted basis in March, compared with a 13% decline for primary homes. Second-home rate locks fell to their lowest level since 2016 in February and remained nearly as low in March.
This stands in contrast to what was happening in 2020 when the pandemic drove intense demand for second homes as well-to-do buyers tapped historically low mortgage costs and higher savings rates.
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Sales of existing homes in counties with at least a 20% share of vacation homes rose by 24% on average in 2020, more than double the 11% increase in counties that don’t have a large volume of vacation homes, according to a 2021 National Association of Realtors report.
Vacation home sales rose by nearly 17% in 2020 and by 33% year-over-year between January and April 2021.
“Now there’s been a huge reversal because of high interest rates and also because of the general economy,” says Daryl Fairweather, chief economist at Redfin. “People are worried about a recession and during a recession, the first thing that tends to get cut are more frivolous items like second homes.”
Mortgage-rate locks for second homes reached a peak of 89% above pre-pandemic levels (defined as the average of January and February of 2020) in August 2020.
Compared to August 2020, when second home mortgage-rate locks reached a peak, March rate locks were down by 75%.
This coincides with the average rate for a 30-year fixed-rate mortgage dropping below 3% in July 2020. In the middle of March of this year, mortgage rates hovered around 6.6%.
The analysis does not include cash purchases.
Who is buying second homes?
Cash buyers are still looking for vacation condos, especially in desirable neighborhoods, says Phoenix Redfin agent Van Welborn.
“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.”
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Second-home demand is also down from a year ago and from January 2022, just before mortgage rates started rising from record lows. Mortgage-rate locks for second homes were down 49% year over year in March and down 71% from January 2022. Mortgage-rate locks for primary homes have dropped 29% year over year and 35% since January 2022.
Options for remote work have begun to dwindle – and with that reduced the opportunity to spend more time in the second home, making them less attractive.
In March 2022, remote-focused listings accounted for more than 20% of all paid job postings, a huge jump from less than 10% in January 2021.
But that spike has given way to an abrupt decline, according to LinkedIn. In November 2022, just about 14% of paid job postings on LinkedIn invited remote applicants.
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
