Nearly two years into the pandemic, buyers are still flocking to vacation homes to take advantage of remote work and low mortgage rates — but the market could be nearing its peak.
Demand for second homes was 87 percent above pre-pandemic levels in January, according to Redfin. The level of demand was its highest in a year, nearly rivaling the 90 percent gain from September 2020 and recovering from a summer dip.
Buyer interest in second homes surpassed demand for primary residences, which rose 42 percent above pre-pandemic levels in January, according to Redfin.
As mortgage rates tick up, however, demand is likely to falter.
“While I expect demand for second homes to remain higher than it was before the pandemic, mostly because of remote work, it may fall slightly in the coming year as mortgage rates continue to go up and fees for second-home loans increase,” said Redfin deputy chief economist Taylor Marr.
Rates surpassed 3.5 percent last month and Redfin expects the average mortgage rate to hit 3.9 percent by the end of the year.
Redfin measured demand by analyzing mortgage-rate lock data provided by Optimal Blue. About 80 percent of mortgage-rate locks result in home purchases.
Opportunities for buyers seeking second homes are also beginning to dwindle.
In seasonal towns, defined as those where at least 30 percent of housing is used for seasonal or recreational purposes, the number of homes for sale dropped by 29 percent year-over-year in the fourth quarter. Prices in these towns rose 20 percent year-over-year in December to a $501,000 average, the 18th straight month of double-digit price growth.
In non-seasonal towns, inventory dropped by 16 percent, a much slower pace year-over-year. Prices rose 13 percent year-over-year, hitting $408,000.
An analysis of mortgage-rate locks by Pacaso in December showed second-home buyers had developed a widespread interest in the Southeast. Franklin County, on the Florida panhandle, had the largest year-over-year increase in second-home purchases during the first 10 months of 2021. Other rising second-home markets include Sevier County in Tennessee and Trigg County in Kentucky.