Mortgage applications for vacation properties plummeted 40% in 2023, according to a Redfin report issued Monday, marking a downturn in a market that once flourished during the pandemic boom.
Demand for second-home mortgages fell twice as fast as the demand for primary homes, the report found, as housing costs reached all-time highs. Data tracked for this year shows that the trend has not reversed, with interest in second-home mortgages remaining near an eight-year low.
U.S. homebuyers took out just under 91,000 mortgages for second homes throughout 2023, down 40% from the previous year and two-thirds from 2021, as market participants face high mortgage rates, low inventory, and record-high home prices.
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“Soaring prices pushed down demand for vacation homes last year, both for cash buyers and those getting a mortgage,” Redfin Premier agent Heather Mahmood-Corley said on Monday.
The typical second home was valued at just under $500,000 in 2023, Redfin noted, much higher than the $375,000 average for primary homes. That cost disparity is a major factor deterring potential buyers from entering the market, particularly those dependent on financing.
As a result, just 3% of all mortgages in 2023 went to second-home buyers, a drop from 5% in 2020. Primary homebuyers accounted for nearly nine out of 10 mortgages in 2023, with the remainder going to investment properties.
Demographically, high-income buyers dominated the market, with nearly 86% of second-home mortgages going to the group. Gen Xers — those aged 43 to 58 in 2023 — were the largest age group of buyers, kick-starting nearly 58% of vacation-home mortgages.
The rising cost of living and economic uncertainties have further exacerbated the decline, with many prospective buyers choosing to delay their purchases.
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Regionally, Austin, Texas, saw the highest decline in second-home mortgages, with a 62.5% year-over-year drop in 2023. The city’s housing market, which had boomed during the pandemic due to an influx of remote workers, has slowed as migration trends reversed and housing costs climbed.
Other major cities seeing substantial declines include San Francisco, New York, Seattle, and Nashville, according to the report.
In contrast, relatively affordable metros in the middle of the country and on the East Coast saw smaller declines in second-home mortgages. St. Louis, Kansas City, Providence, Montgomery County, and Warren each reported drops between 25% and 32%.
Florida remained a popular destination for second-home buyers, with West Palm Beach leading the pack. Just under 7% of all mortgage originations in West Palm Beach in 2023 were for second homes, followed by Orlando, Riverside, New Brunswick, and Tampa.
As mortgage rates continue to hover near 7%, the outlook for the vacation home market remains uncertain. “People who would need a mortgage are still sitting on the sidelines, waiting for rates to come down — especially because rates are typically even higher for second homes than primary homes,” Mahmood-Corley said.
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This article Vacation-Home Buyers Retreat Amid Soaring Interest Rates originally appeared on Benzinga.com
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