According to a new report from Redfin [1], homebuyer demand for second homes and investment properties was up 87% from pre-pandemic levels in January—the highest level in a year, and just shy of the record 90% gain in September 2020. Demand for second-home mortgages is outpacing demand for primary residences, which was up 42% from pre-pandemic levels.
The expanding interest in vacation homes began in mid-2020, as more affluent Americans took advantage of remote work and low mortgage rates to escape to and invest in vacation destinations. Though demand remained well above pre-pandemic levels, it declined last spring before bouncing back in the fall.
“Demand for second homes was strong in January as buyers tried to lock in relatively low mortgage payments,” said Redfin Deputy Chief Economist Taylor Marr [2]. “Mortgage rates surpassed 3.5% in January for the first time since March 2020, encouraging buyers who were on the fence about purchasing a vacation home to commit before rates increase further.”
The vacation-boom has also affected home prices in seasonal towns with rates up 20%, by outpacing non-seasonal towns, and expected to continue throughout 2022. A seasonal town is defined as an area where more than 30% of housing is used for seasonal or recreational purposes, according to the 2019 Census.
Second homes are often located in seasonal towns, where the home sale price is up more than prices in non-seasonal towns. The typical home in a seasonal town sold for $501,000 in December, at a 20% year-over-year increase—marking 18 consecutive months of double-digit price growth.
Meanwhile, in non-seasonal towns, the median sale price rose 13% year-over-year to $408,000. The number of homes for sale in seasonal towns was down 29% in Q4, versus a 16% decline in non-seasonal towns. Experts say demand from second-home buyers is likely contributing to stronger price growth and tighter inventory in seasonal areas.
“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 Marr.
Redfin economists predict that the average 30-year fixed mortgage rate will rise to 3.9% over the course of 2022.
Click here [1] to read Redfin's analysis of second homes and vacation homes.