The red-hot demand for vacation homes has cooled some after a surge from people looking to get away over the last year or so. But there’s still a lot more interest in second properties than there was before the pandemic, as homebuyers make the transition to remote work permanent.
Demand for second homes fell 19.3% year-over-year in August, according to an analysis by real estate firm Redfin. That was a much steeper drop-off than the 1% year-over-over dip in demand for primary residences and the third straight month that interest in vacation properties was below where it was the year before. The three straight declines have come after a hot year for vacation homes, with 13 straight months of year-over-year increases between May 2020 and May 2021, as the chart below shows. The steeper drop in demand for vacation homes is mainly due to the relatively large gain in demand for second homes a year ago, Redfin said, as people sought to take advantage of remote work and find more space amid stay-at-home restrictions from the pandemic.
Those people looking for vacation homes created more competition in a housing market already frenzied with high demand and relatively few homes available. The desire for extra space and low interest rates on mortgages helped make residential real estate an attractive purchase during the pandemic, depleting inventories and sending home prices shooting to record highs. The market as a whole has begun to cool off some in recent months, slowing the demand for second homes in the process, Redfin said.
But interest in second or vacation homes still remains above pre-pandemic levels, and Redfin lead economist Taylor Marr said interest will likely stay elevated as more people shift permanently to remote work. Purchases of vacation homes made up 6.7% of overall existing-home sales in the first four months of 2021, according to data from the National Association of Realtors, compared to 5% of sales in all of 2019.
Redfin used so-called mortgage-rate lock data for its analysis, saying that roughly 80% of these rate locks result in actual home purchases. Under the terms of a mortgage-rate lock—an agreement in which homebuyers can lock in an interest rate for a certain period of time—customers need to specify whether they’re applying for a primary home, a second home, or an investment property.
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