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by Maurie Backman | Published on Oct. 16, 2021
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If you're contemplating buying a second home, know that doing so right now is a mixed bag.
At several points during the pandemic, the demand for second homes soared. But recently, buyers seem to have either lost interest or patience (or perhaps both).
In August, the demand for second homes dropped 19.3% from the previous year, according to Redfin. That marks the third month in a row of declines.
But the demand for second homes is still above pre-pandemic levels. The COVID-19 crisis has prompted many people who can afford another home to purchase a place to escape to. And with mortgage rates sitting near record lows, it's easy to see why so many buyers rushed to purchase a second home earlier this year.
In fact, sales of vacation homes made up 6.7% of overall existing home sales between January and April of 2021. That's up from 5% in 2019, as per the National Association of Realtors.
If you've been thinking of buying a second home, you may be wondering if now's a good time to move forward. The answer? It's complicated.
The fact that the demand for second homes has declined could work to your benefit as a buyer. The less competition you have, the less likely you'll be to wind up in a bidding war with other buyers for the same property. And that means you could end up paying a bit less for the home you buy.
Plus, while mortgage rates aren't quite at historic lows, they're pretty darn competitive in their own right. And if you have a great credit score, you'll be even more likely to lock in an affordable mortgage that makes your second home easier to pay off.
While the demand for second homes may be down and mortgage rates are still quite attractive, home prices are way up. And that alone could negate any savings you reap from locking in an affordable mortgage rate.
In July, home prices rose 19.7% from the previous year, according to the S&P CoreLogic Case-Shiller Index. That's a record high as far as the index is concerned.
Now, let's think about popular vacation areas. In many of them, inventory of available homes is limited. Sellers might choose to take advantage of that and list their homes at really high prices, so at the end of the day, you could wind up paying even more.
Where does all of this leave you as a buyer? It depends.
If you can find a second home at an affordable price point, then now may be a good time to buy, especially if you're able to secure a low mortgage rate and you don't get stuck in a bidding war. But if you're still having a difficult time navigating the real estate market, then you may want to hold off.
Right now, housing inventory is low across the board, and that extends to second homes. If you wait things out a bit -- say, till mid-2022 -- you may find that there are more options to choose from. You may also find that home prices come down for that very reason.
Mortgage rates are likely to stay low well into next year. So if your current search for a second home isn't working out too well, waiting to buy one could be the better call.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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