Buying a second home has long been a goal of mine, even though I complain often about owning a primary home. The reality, though, is that a second home could, in theory, have a very different function for me.
My primary home is the one my family lives in year-round. However, a second home could serve as a hybrid vacation spot and real estate investment.
My target location for a second home is about five hours away from my primary home. That's far away enough to feel like a getaway but close enough to make frequent visits to that home possible.
Image source: Getty Images.
That also means that I may have the option to be a more hands-on landlord should I decide to forgo a property manager and save that money. Granted, I'm not in any way handy, but my husband is, and between the two of us, we might be able to manage a stream of short-term rental tenants without outside help.
For quite some time now, my husband and I have had the funds on hand to put down on a second home. But I don't see us buying this year for a couple of big reasons.
1. Home prices are still up
According to CoreLogic, home prices averaged year-over-year gains of 15% in 2021. That's pretty substantial -- especially compared to 2020, which saw annual home price gains of 6%.
Because home prices are so high right now, it makes purchasing a second home less appealing and less financially sound. Right now, I can comfortably swing mortgage payments and upkeep on a second home. But what if my financial situation changes? If I buy at a high now but need to sell a few years later, there's a good chance I'll be looking at a major loss. That's not a risk I'm willing to take -- not when there's no particular rush to buy a second home.
2. Mortgage rates are no longer as appealing
Inflated home prices have plagued the housing market since the end of 2020. But one thing buyers have managed to benefit from is months of record-low mortgage rates.
Sadly, that window seems to have closed. While mortgage rates are still sitting at fairly competitive levels, historically speaking, the bargain rates borrowers snagged last year are no longer on the table.
As of this writing, the average 30-year mortgage is already above 4%, and since I'm not ready to lock in a mortgage yet (with not having found a specific home to buy), there's a good chance rates will climb even higher in the coming months. And when we combine higher rates with inflated prices, it's hard to get excited about the idea of buying property.
Putting my plans on hold
Right now is a great time to own a vacation rental, so to that end, I'm disappointed not to get to buy an investment property in 2022. But while I may miss out on some near-term rental income, I can say with confidence that now isn't the right time for me to purchase a second home. And it's probably the wrong time for a lot of people in a similar boat.
If mortgage rates continue to climb, it could drive buyer demand downward, resulting in a gradual decline in home prices. But we may not see more consistent, moderate levels of home pricing until 2023. So, for now, I have no plans to start building out a real estate portfolio in 2022. Instead, I'll stick to my primary home and continue to grumble about my higher property taxes and never-ending list of maintenance and repairs.
