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More potential home buyers may be getting priced out of second homes. Rising prices and loan increases are slowing demand after a pandemic-driven boom in the sector.
Mortgage rate locks for second homes were still up 9.1% from pre-pandemic levels in April, but that marks a significant drop from the second half of 2020 and 2021. At that time, demand climbed as high as 88% above pre-pandemic levels.
Prices for second homes have surged and mortgage rates have risen considerably. With the 30-year fixed rate now averaging 5.3%, the typical monthly mortgage payment has increased by about $520 since the first week of January, when rates averaged 3.2%, according to a recent blog post at the National Association of REALTORS®.
Second-home buyers face even greater costs than those recent increases. The federal government increased loan fees for second homes on April 1. For a typical buyer, that added about $13,500 to the cost of purchasing a $400,000 home.
“As monthly mortgage payments skyrocket, buyers are quicker to back away from second homes than primary homes,” says Taylor Marr, Redfin’s deputy chief economist. “Sky-high prices and soaring mortgage rates were already deterring buyers, and the new loan fees—along with weakness in the financial markets—are an added obstacle. While second homes are still a bit more popular than they were before the pandemic, it’s safe to say the vacation-home boom is over for now. We may see a resurgence in second-home demand when the stock market makes a comeback.”