An index measuring homebuyer interest in vacation homes plummeted in February, reaching its lowest level since the early days of the pandemic, according to real estate firm Redfin. As the chart below shows, February was also the first month of the pandemic when demand for second or vacation homes was exceeded by demand for primary residences, relative to pre-pandemic levels. Redfin’s index is based on data from analytics firm Optimal Blue showing how many prospective homebuyers had locked in mortgage rates with their lenders. The dramatic downturn underscores the sharp increase in mortgage rates this year, particularly starting in February. The average rate on a 30-year mortgage is now 4.83%, up well over 1 percentage point since the start of the year and a big change from the early days of the pandemic, when it had dropped as low as 2.89%, according to lender data provided to The Balance. You might say interest rates and ever-rising prices are finally catching up a bit with the vacation home market. “Rising mortgage rates, combined with rising home prices, are hitting the second-home market much harder than the primary-home market,” Daryl Fairweather, Redfin’s chief economist, said in a recent report. “That’s largely because vacation homes are optional. People don’t need a second home, but they do need a place to live. Still, people are buying up vacation homes more than they were before the pandemic, as work remains more flexible than it used to be.” The pandemic generated conditions that created a steep jump in demand for vacation homes: options for remote work—paired with those low mortgage rates and concerns over city crowds, Redfin said. Last spring, higher costs along with the end of lockdowns and tighter lending rules caused a big dropoff, but by the second half of 2021 more buyers were seeking to lock in still-low mortgage rates before they increased any more, according to Redfin. Have a question, comment, or story to share? You can reach Terry at tlane@thebalance.com.
