According to a new report from Redfin, demand for second homes fell 19.3% year-over-year in August, marking the third consecutive month of declines. Demand for primary homes fell slightly by 1% year-over-year.
Redfin also conducted a mortgage rate lock analysis from real estate analytics firm Optimal Blue. A mortgage rate lock is an agreement between the homebuyer and the lender that allows the homebuyer to lock in an interest rate on a mortgage for a certain period of time, offering protection against future interest rate hikes. Homebuyers must specify if the rate lock is for a primary home, secondary home, or investment property. Within the past year, 80% of mortgage-rate locks resulted in actual home purchases.
Demand for second home purchases was extraordinarily inflated last year, which is why second home purchases decreased more than primary home purchases. Specifically, demand for vacation homes skyrocketed last year, surging as much as 172% in April, as wealthy Americans sought an escape from the cramped city life. But, as the overall housing market started to cool, their insatiable demand slowed.
Although interest rates for second homes are lower than what they were last year, they remain above pre-pandemic levels and will likely stay elevated due to the permanent shift to remote work for many Americans. In the first four months of this year, second homes comprised 6.7% of overall existing-home sales, up 5% from 2019, according to a recent report from the National Association of Realtors (NAR).
"The pandemic isn't over, but the desire to escape isn't as intense as it was before,” said Redfin lead economist, Taylor Marr. “People are increasingly returning to life as normal, with kids going back to school and cities coming to life again. The housing market as a whole is still booming, just not as strongly as it was in the second half of 2020. Homebuyer competition, migration and home-sales growth have all slowed.”
