August U.S. Vacation Home Demand Hit 7-Year Low

Second-home mortgage rate locks are about 50% lower than pre-pandemic levels.

Redfin reports that seasonally adjusted mortgage-rate locks for second houses in the U.S. fell 47% from pre-pandemic levels in August, compared to 33% for primary residences.

High housing costs and limited inventory have kept second-home demand at least 30% below pre-pandemic levels for 14 months. In February, second-home rate locks fell 52% below pre-pandemic levels, a seven-year low.

A homebuyer and lender agree to lock in a mortgage interest rate for a set time. About 80% of rate locks result in purchases.

Second-home demand is down from last year. Second-home mortgage-rate locks are down 19% year over year, more significant than the 14% drop for primary houses.

After peaking at 88.5% above pre-pandemic levels in October 2020, vacation home mortgage locks fell. Many wealthy Americans bought second houses with record-low mortgage rates when they could work remotely from vacation spots. Primary home demand also increased, but moderately, reaching 16% over pre-pandemic levels in late 2020.

High prices, financing fees, and declining rental property desirability dissuade second-home buyers.

In August, mortgage rates reached a two-decade high, reducing primary and secondary house demand. High housing prices, high prices of other goods and services, the uncertain economy, and a lack of fresh listings deter purchasers of both home types.

However, vacation home demand dropped more due to several factors:

Second homes cost extra. Many second houses are in seasonal towns, where the average home sells for $564,000, up 5% from last year. Home prices in the non-seasonal cities rose 5% to $421,000. Second-home mortgages are also higher. Finally, in 2022, the federal government raised second-home loan fees by tens of thousands of dollars.

Many workers are back at work. As more employers need part-time employees, second houses are less appealing.

Less appealing are short-term rentals. Buying a vacation house to rent on Airbnb may be less attractive. Local governments like York City are imposing additional short-term rental laws like taxes and tight permitting, which limit revenues and make business harder.

Long-term rentals are falling. Buying a vacation house to rent it out long-term is less appealing. Although rates remain expensive, many landlords offer incentives to attract renters as the rental market cools after the pandemic. With many new units coming on the market, landlords have more vacancies.