As mortgage rates rose slightly, demand for second homes fell precipitously in February, hitting its lowest level in nearly two years, according to Redfin data released on Tuesday.
As mortgage rates rose slightly, demand for second homes fell precipitously, hitting its lowest level last month since May 2020, shortly after the coronavirus erupted in the United States, according to data from Redfin. released on Tuesday.
Demand for holiday homes is 35% above pre-pandemic levels, but that figure is well below the 87% increase in demand seen in January.
For the first time since the start of the pandemic, demand for primary residences actually slightly exceeded that for vacation homes, with mortgage rate locks on primary residences up 36% from pre-pandemic levels. pandemic.
Demand for second homes peaked in March 2021 at 95% above pre-pandemic levels as remote work opportunities, low mortgage rates and the desire to vacation away from others drove Americans to second homes. But the threat of higher mortgage rates has dampened demand considerably.
“Rising mortgage rates, combined with rising house prices, are hitting the second home market much harder than the primary home market,” Redfin chief economist Daryl Fairweather said in a statement. “It’s largely because vacation homes are optional. People don’t need a second home, but they need a place to live. Yet people are buying more vacation homes than they were before the pandemic, as work remains more flexible than it was before.
In mid-February, the average 30-year mortgage rate hit a high of 3.92%, a significant jump from the low of 2.65% reached in early 2021. As a result, the typical mortgage payment has also increased by hundreds of dollars from just a year ago (this is also the result of rising house prices).
A recent announcement from the Federal Housing Finance Agency (FHFA) said fees on loans for second homes would increase by 1-4% from April, which is expected to continue the decline in demand for vacation homes. This percentage increase could add about $13,500 in expenses associated with buying a $400,000 second home, which buyers can either pay up front or as part of their monthly mortgage payment (which would be around $60 per month).
Despite falling demand in February, seasonal towns (where people often shop for vacation homes) continued to see rising prices and a shortage of inventory, Redfin’s report noted. Seasonal home prices in town rose 20% year-over-year in February to a median of $513,000, marking a year-and-a-half of year-over-year home price growth in seasonal cities by 10% or more.
Meanwhile, inventories in seasonal towns fell a record 29% year-over-year. By comparison, home prices in non-seasonal cities rose 13% year over year to $414,000 and inventory fell 17% year over year.
“The fact that house prices are up and inventory is down even as demand for second homes declines suggests that some workers in permanently remote jobs may be moving to vacation destinations rather than buying homes. secondary, and that investors are interested in seasonal towns,” Redfin’s report said.
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