The demand for second-home mortgages has fallen to an eight-year low, plagued by higher home prices, interest rates, and loan fees.
Mortgage-rate locks for second homes fell 13.1% year over year in August, hitting their lowest level since March 2016, according to a Redfin report. That decline represents a 59.2% drop from pre-pandemic times.
Concurrently, mortgage-rate locks for primary homes declined 5.2% in August, per Redfin – a 31.9% rate drop from pre-pandemic levels.
Why Aren't Second Homes Selling?
Analysts with Redfin attributed the decline in second-home sales to several factors, not excluding the fact that the government raised loan fees for second homes between 1.125% and 3.875% in 2022.
“Second homes are more expensive, and aren’t a necessity like primary homes,” the report read. "That means when housing costs rise, many prospective second-home buyers back off.”
Furthermore, many second homes are located in markets where the population fluctuates, and is substantially higher, on a seasonal basis. Home prices tend to be higher in those markets, which with added fees and borrowing costs has driven down sales.
The typical home in a seasonal town sold for $589,162 in August, up 4.1% from a year earlier. That compares with $437,787 for homes in non-seasonal towns, up 4.7%.
Increased restrictions on short-term rentals and generally lower asking rents have also made buying a second home with the hope of renting the property less attractive to investor-buyers. The cherry topping of this melting second-home-market sundae is the prospect of an economic recession looming.
What History Tells Us
The market for second homes just isn’t what it used to be – in 2020, that is.
In October of 2020, as the concept of 'home' became something new altogether for Americans working remotely, mortgage-rate locks for second homes skyrocketed a record 96.2% above pre-pandemic levels.
Shay Stein, a Redfin Premier real estate agent in Las Vegas, said the price range that second homes tend to fall within is higher than many buyers can afford right now.
“Most of the homes that are sitting on the market right now are second homes — especially those in the $400,000 to $800,00 price range, which tend to be more stagnant,” Stein said.
