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Mortgage-rate locks on second homes were down 47 percent from their pre-pandemic levels as of Aug. 2023, just shy of a seven-year low seen in February when rate locks were down 52 percent from pre-pandemic levels, as home costs have risen and employers have continued to draw their employees back to the office.
August’s decline in second-home mortgage-rate locks was much steeper than the 33 percent decline in rate locks seen for primary homes from pre-pandemic levels, Redfin reported, based on data from real estate analytics firm Optimal Blue. August was the 14th consecutive month in which second-home demand has been at least 30 percent below pre-pandemic levels.
Mortgage-rate locks allow homebuyers to “lock in” an interest rate with a lender for a certain period of time, with about 80 percent of rate locks leading to purchases.
On an annual basis, mortgage-rate locks for second homes were down 19 percent in August, compared to the 14 percent year-over-year decline in rate locks on primary homes.
The mortgage rate lock figures are a stark contrast to those seen during the height of the pandemic, which hit a peak of 88.5 percent above pre-pandemic levels in October 2020 as mortgage rates hit record lows and homebuyers could work remotely from anywhere. Rate locks on primary homes also increased during the pandemic, but not by nearly as much — those hit a peak of 16 percent above pre-pandemic levels in late 2020.
Mortgage rates, which hit a two-decade high as of August, still-elevated home prices, the rising cost of goods and services, and an uncertain economy have all contributed to the decline in demand for both second and primary homes, Redfin noted.
However, the impacts on second homes are more exaggerated for a number of reasons.
Home prices in towns with a high concentration of second homes tend to be higher; mortgage rates on second homes tend to be higher than those on primary homes, too. The sales price of a typical home in a seasonal town is up 5 percent year over year to $564,000, Redfin reported, compared to $421,000 in non-seasonal towns.
Buying a second home to rent out as a short-term rental is also becoming more cumbersome as different cities enact more stringent short-term rental regulations and enact new taxes, which ultimately cut into an owner’s profits.
For those second-home homeowners who might purchase a property with the idea of renting it out long-term, that prospect has also become less simple with the long-term rental market having cooled now from pandemic highs. Landlords have had to begin offering concessions to woo new renters, and vacancies are poised to continue rising, with many new luxury units set to hit the market in the near future, a separate Redfin analysis noted.
Finally, more major companies are requiring employees to work in the office again, at least on a part-time basis, including Amazon, Apple, Disney and JPMorgan. That back-to-the-office requirement is also seriously curbing buyers’ ability to manage a second home in a different market, potentially dissuading them from a purchase.
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