The American vacation home boom is over due to high prices, rising rates, and economic uncertainty.

by Editor

According to a recent analysis by national real estate broker Redfin, customer demand for U.S. vacation houses has dropped below the pre-epidemic baseline for the first time in two years. Mortgage rate locks for second homes are also lower now than they were in May 2022, before the pandemic. That’s a decrease from the revised rate of 3% above pre-pandemic levels one month earlier and from the revised rate of 70% above pre-pandemic levels one year earlier.

Due to rising home prices, mortgage rates that have quickly increased to almost 6%, and a falling stock market—factors that are also slowing down the rest of the housing market—demand for second homes is diminishing. The fact that the federal government raised loan costs for second houses in April, adding around $13,500 to the price of buying a $400,000 home, serves as another barrier to potential buyers of second homes.

According to Taylor Marr, deputy chief economist at Redfin, “skyrocketing monthly payments and rising loan costs have driven many second-home purchasers out of the market.” “As a result of the fact that second homes aren’t necessary in the same way that primary residences are, many prospective buyers are put off by the stock market turbulence, high inflation, and recessionary anxieties. As long as mortgage rates are high and the stock market is in decline, the second-home market will probably continue to cool.”

The decline in demand for vacation homes contrasts sharply with the second half of 2020 and 2021, when mortgage rate locks for second homes rose as a result of historically low mortgage rates and the freedom to work remotely. In March 2021, when it was around 90% higher than pre-pandemic levels, demand reached its pinnacle.

In February 2022, as mortgage rates started to rise, there was a dramatic decline in interest in second houses. In the week ending June 23, 2022, the average 30-year fixed mortgage rate was 5.81%.

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