Demand For Vacation Homes Is Down More Than 50% From Pre-Pandemic Levels

The number of people locking in mortgages for second homes dropped to its lowest level since 2016 in February and remained nearly as low in March

Seattle, WA – April 10, 2023 (BUSINESS WIRE) (NASDAQ: RDFN) Mortgage-rate locks for second homes were down 52% from pre-pandemic levels on a seasonally adjusted basis in March, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That is compared to a 13% decline for primary homes.

“Add the recent increase in loan fees, inflation, shaky financial markets, the end of pandemic-related financial stimulus and many companies calling workers back to the office, and it’s simply a challenging time for most Americans to buy a vacation home.”Tweet this

Second-home rate locks fell to their lowest level since 2016 in February and remained nearly as low in March.

The drop in second-home demand follows a meteoric rise during the pandemic homebuying boom. Mortgage-rate locks for second homes reached a peak of 89% above pre-pandemic levels in August 2020. At that time, many affluent Americans bought homes in vacation destinations, encouraged by low mortgage rates, remote work, and limitations on traveling from place to place.

Second-home buyers are deterred by high rates, newly instituted loan fees, slowing rental market

A scarcity of new listings, elevated mortgage rates, still-high home prices and persistent inflation, among other economic woes, are holding back demand for both primary and second homes.

A variety of factors are causing the outsized drop in second-home demand:

  • Many potential second-home buyers are priced out because it’s frequently more expensive to buy a vacation home than a primary home. The typical second home was worth $465,000 in 2022, versus $375,000 for a primary home. Additionally, the federal government increased loan fees for second homes in April 2022.
  • Vacation-home buyers are quicker to pull back from the market than primary-home buyers because second homes aren’t a necessity.
  • Workers are returning to the office. Second homes are less attractive when there’s less time to spend in them. While working from home is more common than it was before the pandemic, the share of job openings that allow remote work has shrunk since early 2022.
  • Buying a vacation home to rent it out is nowhere near as attractive as it was during the pandemic homebuying and investing boom. Owners of short-term rentals are reporting a steep decline in business. That’s because many people became vacation-rental hosts during the pandemic, which led to oversupply. Many local governments are also instituting new short-term-rental regulations, like new taxes and stricter permitting. The long-term rental market is also cooling.
  • Bank accounts are shrinking as stock markets decline, so would-be buyers have less cash on hand for down payments and monthly payments.
  • Many people with the means and desire to buy a second home have already done so, during the pandemic homebuying boom of 2020 and 2021.

“With housing payments near their all-time high; a lot of people can’t afford to buy one home right now, let alone a second,” said Redfin Deputy Chief Economist Taylor Marr. “Add the recent increase in loan fees, inflation, shaky financial markets, the end of pandemic-related financial stimulus and many companies calling workers back to the office, and it’s simply a challenging time for most Americans to buy a vacation home.”

But there are still some second-home buyers out there, especially in popular vacation destinations. Phoenix Redfin agent Van Welborn said some buyers are looking for vacation condos, especially in desirable neighborhoods.

“It’s mostly affluent cash buyers who don’t have to worry about high rates,” Welborn said. “They’re motivated to buy now because they think they can get a vacation home for under asking price–and in some cases, they’re right. There are fewer buyers looking to buy properties to be used as short-term rentals, though, as they’re finding that the market is saturated.”

Interest in second homes first fell below pre-pandemic levels in March 2022 as mortgage rates rose and the loan-fee increase loomed. To view the full report, including charts and methodology, please visit: https://www.redfin.com/news/demand-down-second-homes-march-2023

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. 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 have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, less than half of what brokerages commonly charge. Since launching in 2006, we’ve saved customers more than $1 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 5,000 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.

Contacts

Redfin Journalist Services:
Ally Braun, 206-588-6863
press@redfin.com

Vacation Home Markets Haven’t Yet Regained All Their Lost Value

– Markets with the highest concentrations of vacation homes saw a more exaggerated bubble and bust cycle than the rest of the housing market

– Markets with the highest densities of vacation homes remain 9 percent below their pre-crisis peak value, while those where vacation homes are least common are 14 percent above their peak.

– During the housing boom, home values in vacation markets climbed 117 percent, compared to an 83 percent increase in markets with the smallest share of vacation homes.

– Vacation markets have seen slower home-value appreciation than the overall market in all but one year since 2010.

Seattle, WA – June 13, 2018 (PRNewswire) In places where vacation homes are most common, the housing crisis still shows a noticeable effect on the market.

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Scattered across the country, vacation home markets(i) experienced a steeper run up in home values during the housing bubble, but also a sharper fall. Vacation home markets gained 117 percent in value between 2000 and 2006, compared with an 83 percent home value increase in places with the smallest share of vacation homes. However, the losses were greater when the housing market crashed, with home values falling 35 percent and 26 percent, respectively.

Along the eastern shore of Hilton Head Island(ii), where 54 percent of homes are vacation homes, the typical home gained 95 percent in value between 2000 and 2006, then lost 41 percent. In comparison, Beaufort County overall gained 67 percent in value, but only fell 36 percent.

In Cape Cod, where 39 percent of homes are vacation homes(iii), the typical home gained 83 percent in value between 2000 and 2006, then lost 19 percent. The state of Massachusetts as a whole only gained 56 percent in value, but also fell 19 percent.

The recovery has also been slower to reach vacation home markets. Since 2010, home value appreciation in these markets has been slower than the rest of the market every year except 2012. Home values grew 0.7 percentage points less in vacation markets in 2017 than they did in the rest of the country.

As a result of this slower home value growth during the recovery, home values in vacation home markets are still 9 percent below the peak reached at the height of the housing bubble. By contrast, markets with the smallest share of vacation homes(iv) are 14 percent more valuable than they were before the recession.

“Vacation home markets have lagged the rest of the country during the economic recovery, despite an exaggerated boom and bust a decade ago,” said Zillow® senior economist Aaron Terrazas. “As the economy improves and more Americans feel secure in their personal finances and primary residences, it is possible that more will look to buy a vacation home. The good news is that there are still bargains to be found in many vacation communities, but recent tax changes will eat into the tax benefits of second-home ownership. Beyond financial considerations, Americans are increasingly conscious of the environmental risks common in many vacation communities, including those from rising sea levels and storm surges, hurricanes and wildfires.”

The Southern and Western regions have the biggest gap between the recovery in vacation markets and the overall housing market. Home values in Southern vacation home markets are still 17 percent below the highest point they reached during the housing bubble, while markets with the smallest share of vacation homes are 9 percent more valuable. In the West, places with the lowest concentration of vacation homes are 21 percent higher than they were during the housing bubble, and vacation home markets are still 3 percent lower than their bubble peak value.

The Midwest is the only region where vacation home markets have recovered better than areas where vacation homes are less common – home values in vacation markets are 9 percent higher than the bubble. In places where vacation homes are least common, home values are 2 percent above their peak levels from the housing bubble.

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Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with great real estate professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow Group’s Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ: Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

(i) Classified as any ZIP code with more than 10 percent of homes whose primary use was “recreational, seasonal or occasional” according to the 2000 Census.

(ii) ZIP code 29928

(iii) https://www.zillow.com/research/places-most-vacation-homes-19835/

(iv) Classified as any ZIP code with less than 5 percent of homes whose primary use was “recreational, seasonal or occasional” according to the 2000 Census.



LendingTree Reveals the Cities with the Highest Share of Vacation, Investment and Second Homes

New LendingTree study ranks cities by non-owner occupied mortgage originations

Charlotte, NC – June 11, 2018 (PRNewswire) LendingTree®, the nation’s leading online loan marketplace, today released its study on which cities have the highest share of vacation, investment and second homes.

lendingtree

The current housing market is characterized by low inventory for both new and existing homes. With current owners who are willing to sell in short supply, rising interest rates may further exacerbate this issue. Rising rates create a “lock-in” effect where current owners are dissuaded from selling and moving as their new home would come with a higher rate if financed. In the new market, homebuilders are facing rising prices for inputs and labor, which are eroding their profit margins. This is particularly acute for lower-priced homes that are not being build fast enough.

In this environment, every unit of inventory makes a difference for homebuyers. LendingTree’s study looks at the share of mortgages made for non-owner occupied properties to gauge their impact on inventory.

LendingTree analysts ranked the top 50 metros by the share of non-owner occupied loans based on the recently released HMDA data for 2017. Non-owner occupied properties are either vacation homes, investment properties or second homes. The study also looks at the average loan amounts for owners and non-owners.

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Key findings from the study include:

  • There is a clear regional break. Cities with the most non-owner occupied properties were located in the South or the West, while those with the least are in Northeast and Midwest.
  • Southern cities may be attracting investors due to low prices and growing populations. Many residents in Southern cities may not be able to access home ownership due to lower median salaries, creating a ready pool of renters.
  • In the West, the opportunity for rapid price appreciation is likely attracting investors. But high prices also suppress homeownership, creating a pool of renters.
  • In the Northeast and Midwest, affordable homes mean the opportunity to be a homeowner is high and less appreciation attracts less investors.
  • The homeownership rate in the top 10 cities is an average 59 percent compared with just 67 percent in the bottom 10. Even Detroit, a city often cited as having a challenging housing market, has a homeownership rate above all the top 10 cities.

Cities with most non-owner occupied mortgages

#1 Oklahoma City

  • Share of Non-Owner Occupied Mortgages: 15.4%
  • Non-Owner Occupied Average Loan Size: $193,000
  • Owner Occupied Average Loan Size: $182,000

#2 Philadelphia

  • Share of Non-Owner Occupied Mortgages: 14.6%
  • Non-Owner Occupied Average Loan Size: $245,000
  • Owner Occupied Average Loan Size: $225,000

#3 Memphis, Tenn

  • Share of Non-Owner Occupied Mortgages: 14.6%
  • Non-Owner Occupied Average Loan Size: $126,000
  • Owner Occupied Average Loan Size: $192,000

Cities with the least non-owner occupied mortgages

#48 Hartford, Conn.

  • Share of Non-Owner Occupied Mortgages: 5.9%
  • Non-Owner Occupied Average Loan Size: $237,000
  • Owner Occupied Average Loan Size: $215,000

#49 Cleveland

  • Share of Non-Owner Occupied Mortgages: 5.7%
  • Non-Owner Occupied Average Loan Size: $124,000
  • Owner Occupied Average Loan Size: $167,000

#50 Detroit

  • Share of Non-Owner Occupied Mortgages: 5.2%
  • Non-Owner Occupied Average Loan Size: $115,000
  • Owner Occupied Average Loan Size: $163,000

To view the full report, visit: www.lendingtree.com.

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About LendingTree
LendingTree (NASDAQ: TREE) is the nation’s leading online loan marketplace, empowering consumers as they comparison-shop across a full suite of loan and credit-based offerings. LendingTree provides an online marketplace which connects consumers with multiple lenders that compete for their business, as well as an array of online tools and information to help consumers find the best loan. Since inception, LendingTree has facilitated more than 65 million loan requests. LendingTree provides free monthly credit scores through My LendingTree and access to its network of over 500 lenders offering home loans, personal loans, credit cards, student loans, business loans, home equity loans/lines of credit, auto loans and more. LendingTree, LLC is a subsidiary of LendingTree, Inc. For more information go to www.lendingtree.com, dial 800-555-TREE, like our Facebook page and/or follow us on Twitter @LendingTree.

MEDIA CONTACT:

Megan Greuling
(704) 943-8208
Megan.greuling@lendingtree.com