The demand for second homes or “vacation homes” was down last year, according to a new report from Redfin.
U.S. homebuyers took out 90,772 mortgages for second homes in 2023, down 40% from 2022 and down 65% from the height of the pandemic boom in 2021.
In comparison, mortgages for primary homes fell at half that rate; down 20% year over year in 2023 and down 35% from 2021.
Regionally, second-home mortgage originations declined most in Austin, TX, dropping 62.5% YOY. The next-biggest declines for second-home mortgages were in San Francisco (-57.6%), New York (-53.9%), Seattle (-53%) and Nashville, TN (-51.3%).
“Soaring prices pushed down demand for vacation homes last year, both for cash buyers and those getting a mortgage—but the latter pulled back even more because high rates exacerbated high prices,” said Phoenix Redfin Premier agent Heather Mahmood-Corley. “There has been a small uptick in interest in second homes this year, mostly from cash buyers who plan to eventually move in full time. People who would need a mortgage are still sitting on the sidelines, waiting for rates to come down—especially because rates are typically even higher for second homes than primary homes.”
Redfin analyzed Home Mortgage Disclosure Act (HMDA) data for this study, finding that high mortgage rates, low inventory and high home prices created the perfect storm that made 2023 the least affordable year on record.
Just 3% of all mortgages went to second-home buyers in 2023, down from 3.6% in 2022, 5.1% in 2021, and 5% in 2020.
Analysts attributed the fact that mortgages for second homes dropped more than mortgages for primary homes to several factors. The latter is less expensive, for one; the typical second home was worth $475,000 in 2023, versus $375,000 for primary homes. The federal government also increased loan fees for second homes in 2022, upping the total cost of buying one. Higher housing costs in general were enough of a reason for many prospective second-home buyers to back off since second homes don’t have the same necessity as primary homes do.
In terms of who did take on a second-home mortgage in 2023, high-income buyers made up 86% of the share, and nearly four in five buyers were white people. Asian and Hispanic homebuyers represented 6.4% and 6.2% of new vacation-home mortgages, respectively. Buyers who identify as more than one race took out 5.4% of second-home mortgages, and Black buyers took out 2.7%.
Generationally, 29.5% of vacation-home mortgages went to 55-64 year olds in 2023; 28.6% went to 45-54 year olds; 21% went to 35-44 year olds; 11.4% went to 65-74 year olds, and 6.9% went to people under 35.
