A perfect storm of hurdles has taken the wind out of the second-home market boom seen during the first two years of the pandemic.
Real estate firm Redfin reported that mortgages taken out for second home and vacation home loans last year were down 40% from 2022, and down 65% from the height of the boom in 2021.
Sales boomed in vacation home and second home markets during the pandemic, including the beach communities in Maryland and Delaware.
Overall sales in Ocean City were down double digits on an annual basis in all but three months last year, and down double digits annually in seven months in Rehoboth Beach last year, according to listing service Bright MLS.
Those figures include all home sales and types of transactions. Redfin’s vacation home report focused only on second home purchases and excluded all-cash sales.
Like all residential real estate, prices have continued to rise — but that is not the only reason for the slowdown.
“A lot of people who were buying second homes were using them to generate income from the short-term vacation rental market. The last few years, what we’ve seen is there is such a big supply of Airbnbs that owners aren’t making as much from the vacation rental market,” said Chen Zhao, senior manager of economics at Redfin.
Many towns and cities, and vacation home rental platforms themselves, have added new restrictions to short-term rentals, which has also made it somewhat less attractive to owners.
The median cost of a second home purchased with a mortgage in 2023 was about $100,000 more than it was in 2022. In addition to higher prices, there are now higher loan fees for second home mortgages, which have pushed up closing costs.
Many second homebuyers made those purchases during the pandemic when they had expanded freedom for remote work. Work-from-anywhere flexibility has become considerably less available to workers now, which makes owning a home outside of commuting distance to the office less attractive.
Many pandemic-era beach house buyers in Maryland and Delaware have already become sellers.
One emerging hurdle to second homeownership may continue to worsen: the cost of homeowners insurance.
“Often times when we do think about vacation homes, they are beachfront properties or properties that are in other areas that are climate-risky,” Zhao said. “That’s another factor that will probably be playing an increasing role in the second home market in the years to come.”
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