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. While demand was still up 35 per cent from February 2020, before Covid-19 hit the US, it was significantly lower than the previous month's 87 per cent 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 2 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 2 months after Freddie Mac's average 30-year mortgage rate hit a record low of 2.65 per cent. Borrowing costs have shot up since the end of last year, landing at 4.67 per cent 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.
