After last year’s frenzy for vacation homes, buyers are now recoiling as mortgage rates rise and second home loan fees rise
(NASDAQ: RDFN) – Demand for vacation homes fell sharply for the second consecutive month in March, with mortgage rate freezes for second homes at their lowest level since May 2020, according to a new report by Redfin (www.redfin.com), technology-powered real estate brokerage.
Demand for holiday homes was still up 13% from pre-pandemic levels, but is down after a pandemic-fueled second home boom last year. Still, Redfin expects demand for second homes to remain above pre-pandemic levels going forward, as remote work is here to stay for many Americans.
The slowdown in demand for vacation homes adds to other early warning signs that historically fast rising mortgage rates and record home prices are driving some buyers off.
“The pandemic-induced surge in vacation home sales is coming to an end as mortgage rates rise at their fastest rate in history, forcing some second home buyers to back off,” the statement said. Deputy Chief Economist of Redfin, Taylor Marr. “When rates and prices rise so much that a vacation home starts to look more like a drag than a good investment and a fun place to bring your family for the weekend, many potential buyers have second thoughts. New loan fees for second homes that came into effect on April 1 have also been a deterrent. Plus, some buyers’ down payments — and their nerves — likely took a hit when the stock market fell over the past few months.”
Growth in demand for primary residences outpaced that of secondary residences for the second month in a row, with mortgage rate locks for primary residences up 34% from pre-pandemic levels. Demand for primary residences has remained at roughly the same level since June 2020.
Interest in vacation homes soared in mid-2020 as many affluent Americans began working remotely and mortgage rates fell to record lows, second home mortgage rate freezes peaking at 88% above pre-pandemic levels in March 2021. Demand has fallen sharply. over the past two months as mortgage rates climbed at their fastest rate in history, reaching 4.67% at the end of March, and some workers began to return to the office.
Another deterrent to demand was the impending increase in loan fees for second home loans, which rose by around 1% to 4% from April 1. The change adds about $13,500 to the cost of buying a $400,000 home for the typical vacation home. buyer and will continue to dampen interest in vacation homes in the months to come.
To read the full report, including charts and methodology, please visit: https://www.redfin.com/news/second-home-demand-drop-march-2022/
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