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Soaring mortgage rates dent demand for vacation homes

4/1/2022

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Picture
It contrasts the pandemic buying frenzy

Demand for second homes in the US is plummeting as mortgage rates climb steeply.

After a pandemic buying frenzy, mortgage-rate locks to buy second homes dropped last month to the lowest level since May 2020, according to a report by Redfin Corp. While demand was still up 35% from February 2020, before COVID-19 hit the US, it was significantly lower than the previous month’s 87% jump, the brokerage said.   

Enthusiasm for vacation homes shot through the roof earlier in the pandemic as remote workers, untethered from the office, sought more sunshine and space. But escalating prices -- driven by fierce competition for a tight supply of listings -- and a recent surge in mortgage rates have slowed the boom.  

Those two factors “are hitting the second-home market much harder than the primary-home market,” said Redfin Chief Economist Daryl Fairweather. “That’s largely because vacation homes are optional. People don’t need a second home, but they do need a place to live.”

Vacation-home demand peaked in March 2021, Redfin said. That was two months after Freddie Mac’s average 30-year mortgage rate hit a record low of 2.65%. Borrowing costs have shot up since the end of last year, landing at 4.67% this week.

The rapid increase has pushed even some primary-home buyers to the sidelines at a time when inflation is hurting their budgets. The challenges are particularly tough for first-time buyers who have struggled to find affordable properties as bidding wars for the tightest supply of listings on record push prices out of reach. 

Contracts to buy previously owned homes declined for a fourth straight month in February as the inventory shortage restricted deals, the National Association of Realtors said last week. 

Would-be buyers of vacation homes face another potential obstacle: a fee increase ranging from an additional 1% to 4% on second-home loans backed by Fannie Mae or Freddie Mac. That could tack on as much as $12,000 to a $300,000 mortgage, payable upfront or rolled into the loan.

While the increase officially doesn’t take effect until April 1, the fees have been priced into loans for almost a month, so that may have deterred some buyers already, according to Rebecca Richardson, a broker at Wyndham Capital Mortgage in Charlotte, North Carolina. The city is about a three-hour drive to both the mountains and the beach, making the area a popular vacation-home spot.

Combined with rising rates, the fee increase “has definitely dampened the enthusiasm” among her clients, Richardson said. “It’s becoming a much weightier decision versus last year.” 

That doesn’t mean the second-home boom is over, especially for people who can pay cash and whose remote-work plans have solidified.
​
“Still, people are buying up vacation homes more than they were before the pandemic, as work remains more flexible than it used to be,” Fairweather said



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  • iMove Chicago
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    • CRLTO >
      • 5-12-010 Title, Purpose And Scope.
      • 5-12-020 Exclusions.
      • 5-12-030 Definitions.
      • 5-12-040 Tenant Responsibilities.
      • 5-12-050 Landlord’s Right Of Access.
      • 5-12-060 Remedies For Improper Denial Of Access.
      • 5-12-070 Landlord’s Responsibility To Maintain.
      • 5-12-080 Security Deposits.
      • 5-12-081 Interest Rate On Security Deposits.
      • 5-12-082 Interest Rate Notification.
      • 5-12-090 Identification Of Owner And Agents.
      • 5-12-095 Tenants’ Notification of Foreclosure Action.
      • 5-12-100 Notice Of Conditions Affecting Habitability.
      • 5-12-110 Tenant Remedies.
      • 5-12-120 Subleases.
      • 5-12-130 Landlord Remedies.
      • 5-12-140 Rental Agreement.
      • 5-12-150 Prohibition On Retaliatory Conduct By Landlord.
      • 5-12-160 Prohibition On Interruption Of Tenant Occupancy By Landlord.
      • 5-12-170 Summary Of Ordinance Attached To Rental Agreement.
      • 5-12-180 Attorney’s Fees.
      • 5-12-190 Rights And Remedies Under Other Laws.
      • 5-12-200 Severability.
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