Though mortgage-rate locks for second homes were up nearly 50% year over year in May, high prices and tighter lending rules make vacation-home buyers think twice.
The number of buyers who locked in mortgage rates to purchase a second home nationwide rose 48% year over year in May, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. Though that’s a significant increase, it’s the first time in a year the annual growth rate has fallen below 80%. Year-over-year increases are likely exaggerated because demand for second homes was relatively low in May 2020 due to the coronavirus pandemic slowing real estate activity.
Demand for vacation homes jumped in June 2020 as the U.S. real estate market came roaring back to life, with a 110% year-over-year increase in second-home mortgage locks, and the level remained elevated through April. The annual increase in May is similar to pre-pandemic levels.
There are several reasons for the cooling in second-home demand this spring. High prices are likely playing a role, as is the reopening of offices. The typical spring slowdown in overall pending home sales is also impacting vacation-home sales. Plus, many people with the desire and means to buy a vacation home this year have already done so throughout the pandemic.
Additionally, mortgage-lending rules for second homes tightened in April and May. Under new federal rules, second-home and investment property mortgages can make up just 7% of a lender’s total pipeline. That’s on top of regulations that make it difficult to get a loan for condo towers in resort areas that may be used as short-term rentals.
“In addition to tighter lending rules, vacation-home buyers are starting to react to rising prices,” said Redfin Chief Economist Daryl Fairweather. “Home prices have been climbing rapidly for the last several months, and it seems they’ve finally gotten prohibitively high for some people searching for second homes. Vacation-home buyers are quicker to back away from properties that are potentially overpriced because they’re not a necessity. People searching for primary residences may have to shell out more money than they want to because they need a roof over their heads.”
“A lot of the people who were driven to hunt for vacation homes over the last year have already bought them,” Fairweather continued. “The pandemic and remote work drove many affluent Americans to relocate to vacation destinations, at least part of the time. But with offices reopening and life returning to some semblance of normal, people are less focused on fleeing to the beach or the lake.”
To view the full report, including charts and methodology, please visit: https://www.redfin.com/news/second-home-demand-drops-pre-pandemic-levels
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate broker, instant home-buyer (iBuyer), lender, title insurer, and renovations company. We sell homes for more money and charge half the fee. We also run the country’s #1 real-estate brokerage site. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can take an instant cash offer from Redfin or have our renovations crew fix up their home to sell for top dollar. Since launching in 2006, we’ve saved customers nearly $1 billion in commissions. We serve more than 95 markets across the U.S. and Canada and employ over 4,100 people.
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin’s press release distribution list, email press@redfin.com. To view Redfin’s press center, click here.
SOURCE Redfin
