Rising mortgage rates may be tamping down demand for second homes, which reached its lowest level in February since May 2020, new Redfin research shows. Still, second-home demand, based on the number of mortgage rate lock-ins, remains 35% higher than before the pandemic, according to Redfin.
Vacation homes have been a hot commodity since the pandemic began and remote work triggered higher demand for getaway properties. Record-low mortgage rates at the time also made second homes more affordable for many. But rising mortgage rates and home prices are “hitting the second-home market much harder than the primary-home market,” says Daryl Fairweather, Redfin’s chief economist. “That’s largely because vacation homes are optional. People don’t need a second home, but they do need a place to live. Still, people are buying up vacation homes more than they were before the pandemic, as work remains more flexible than it used to be.”
Another factor that could press on second-home sales is that the Federal Housing Finance Agency’s fees for such loans will rise by from about 1% to 4% starting in April. That could add about $13,500 to a $400,000 second-home mortgage for the typical buyer, Redfin notes.
Shrinking housing inventory also could be holding back second-home purchases. The number of listings in seasonal towns is down a record 29% compared to a year earlier, Redfin reports. (A seasonal town is defined as an area where more than 30% of the housing is used for seasonal or recreational purposes.) The median home price in seasonal towns was $513,000 in February, up 20% year over year. That compares to a median price of $414,000 in nonseasonal towns, up 13%.