The recent housing boom has stemmed from several key aspects. One of the biggest is record-low mortgage rates, which made it easier and more affordable to purchase larger primary residences or vacation homes. Remote working allowed flexibility like never before, which many utilized to sneak away for long weekends at peaceful getaway homes that were just outside the major metros.
The stock market has also been on an upward trend despite speed bumps along the way, giving many the opportunity and confidence to purchase second homes with excess funds. All of this fueled the fire of what some are calling the second home boom.
But data has revealed that the tides are turning for the vacation home market. Will this be enough to help rebalance the supply and demand in housing markets across the country?
What is causing the decline?
Demand for second homes has declined significantly for two consecutive months as of March, likely for a number of reasons. Mortgage rate hikes are increasing at the fastest pace in history. Loan fees also jumped up about 1% to 4% as of April 1 for vacation homes. In order to purchase a $400,000 second home, you will now be paying an additional $13,500 to what you would have paid just one month prior.
This is happening right around the same time many employers have made the shift back to full-time work in the office. This means people who were hoping for long-term remote work options may ditch the second home in exchange for being closer to the office once again.
What was the effect of second-home purchases?
There was an influx of outside money pouring into rural, suburban, and Southern markets as people searched for an ideal vacation home to escape from during the pandemic. These buyers often earned far more than the median income for the area, creating an unsustainable scenario where the average resident was getting priced out of the local housing market.
Housing inventory was low to begin with, but such a dramatic uptick in people purchasing second homes in hot markets took potential primary residences out of the housing stock while pushing prices up.
What will this do to the overall market?
Fewer people buying second homes should help to stabilize many markets that were experiencing overinflated offer prices on homes that were not primary residences, which is good news for prospective homebuyers. These reduced second home purchases mean there's a greater stock of inventory, which can help home prices settle down and back to equilibrium.
Goldman Sachs, Citigroup, and Alphabet's Google, along with many others, are all calling employees back to the office, with some offering hybrid options, meaning abbreviated office work weeks. This may mean second home purchases could remain strong for those who are buying vacation properties in nearby towns or that have easy access by plane, car, or train.
Although this demand seems to have slowed significantly, not all housing markets were experiencing supply pressure exclusively from second-home sales. Interest in owning land, seeking more affordable housing, having a strong local economy, and political motivations also guided buyers to new locations, which won't feel much impact from the decrease in vacation home sales. The Sun Belt will certainly remain a hot market, with little impact from secondary home sales.
If you're on the hunt for a primary residence or investment property, consider the demand for second homes in your area. It may be advantageous to wait a month or two until rates rise further and prices and competition cool a bit.