Second home sales surged during the first year of the pandemic, peaking in August 2020, up 89%from pre-pandemic levels. Maryland and Delaware beach communities became among the most-frenzied for vacation home buyers.
Second home sales have now dropped 52% since that peak, according to March data from real estate firm Redfin, compared to a 13% decline for primary homes.
Redfin’s data on second-home purchases is based on mortgages locked in during the month of March for the purchase of a second home. Mortgaged second-home sales are now the lowest since at least 2016. Redfin’s data does not include all-cash purchases of second homes, but it believes the trend is similar.
Record low interest rates and remote work made second homes attractive for buyers looking to move out of cities and take advantage of their remote work options from nice, vacation-friendly environments.
Many second home buyers also took advantage of those low rates to purchase a second home as an investment and put it in short-term vacation rental programs, such as Airbnb and VRBO, when they weren’t using them.
But short-term vacation rental investments are nowhere near as attractive now.
“The peak in terms of local and national short-term rentals was at the beginning of the pandemic when people couldn’t really leave the country, and were afraid to stay at hotels. But, those two forces are pretty much gone now,” said Daryl Fairweather, chief economist at Redfin.
Interest rates are now near a two-decade high. Owners of short-term rentals are reporting a steep decline in business. That’s because many people became vacation-rental hosts during the pandemic, which led to oversupply of vacation rentals.
Add to that, many local governments instituting new short-term rental regulations, like new taxes and stricter permitting.
Second-home purchases in general have slowed, in part because many people with the means and desire to buy a second home have already done so, during the pandemic home buying boom of 2020 and 2021.
Second-home buyers may also be deterred by higher loan fees on second-home purchases. FHFA raised the upfront fees for mortgage loans sold to Fannie Mae and Freddie Mac to between 1.125% and 3.875%, based on loan-to value ratio. That adds up to thousands of up-front dollars in addition to down payment costs.
A separate report by listing service Bright MLS suggests second home and short-term vacation homeowners are looking to get out of those investments.
In the Mid-Atlantic, one in six sales in March was a rental or investment property, led by 21.4% in Delaware and 19.1% of sales in Maryland, both of which have popular beach communities.
“This pattern suggests that people who purchased second homes of investment homes during the pandemic — particularly in coastal markets — might be looking to offload them as we head into the summer months,” Bright MLS said.
A second home can still be a good investment, especially if you are able to use it.
“Long term, the stock market tends to do better than the real estate market, but tends to also be a bit riskier. So it really depends on personal preference, your appetite for risk, and also how much you can enjoy the home, because it is not just an investment. It is something you can enjoy,” Fairweather said.
