Vacation properties may finally be falling out of favor after a year of lockdowns and remote work drove more high-income Americans to shop for second homes.
The number of buyers who locked in rates for a second-home mortgage was down 11 percent year over year in June — the first such decline recorded since the earliest weeks of the pandemic, according to an analysis by Seattle-based brokerage Redfin.
“The allure of owning a vacation home outside the city still exists — as it did even before the pandemic — but the big second-home boom we’ve seen over the last year is abating,” Redfin Lead Economist Taylor Marr said in the report.
The year-over-year downturn in mortgages for second homes may partly be a result of tighter lending standards enforced by the federal government.
By early May, both Fannie Mae and Freddie Mac had implemented tighter limits on certain riskier loan types, including mortgages for second homes and investment properties. These riskier loans could only account for 7 percent of Fannie and Freddie’s total loan volume after the new standard went into effect.
Meanwhile, the number of mortgage rates locked in for primary residences remained slightly up year over year in June.
“That return to the office, along with soaring prices and tighter lending standards for second homes, is shifting homebuyer demand in favor of primary residences,” Marr said in the statement.
June was the second consecutive month that featured a dramatic scale-back in year-over-year growth for primary- and second-home loan rate locks.
Each month for roughly a year during the pandemic, buyers locked in mortgage rates for second homes in numbers at least 80 percent higher than seen in the same month the previous year, topping out well over a 160 percent increase in April. The following month, that number fell to an increase of less than 50 percent year over year.
The staggering drop was followed by a similarly dramatic slowdown in June — the 11 percent drop recorded by Redfin.
Even as the desire for second-home mortgages has appeared to drop substantially, Redfin’s report points out it still remains above historic averages.
Part of the reason for the year-over-year decline in June was the sheer volume of mortgage-rate locks that were recorded in the summer of 2020, the report said.
Vacation homes have also remained a hot commodity in rental markets this summer, with travelers booking these homes faster than services like Vrbo and Airbnb can recruit new hosts.
With remote work on the rise, some loan applicants may be pursuing primary residences in attractive seasonal towns, instead of living in the city and buying a second home elsewhere.
“With workplaces making their remote work policies permanent and employees feeling more confident making long-term decisions, many Americans are moving full time to scenic vacation towns rather than purchasing second homes,” Redfin Chief Economist Daryl Fairweather said in the report.