Why People Are Giving up on Buying Vacation Homes

The demand for vacation home mortgages has plunged to around an eight-year low, declining 65% since 2021.

Factors that have led to fewer homebuyers purchasing second homes include the rise in mortgage rates, high prices in vacation home markets and decreased flexibility for remote work, according to a new report from Redfin.

“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,” Heather Mahmood-Corley, a Redfin agent in Phoenix, said in the report.

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The information on the daily averages includes financial product data that was in the MRC database at the time of publication. The assumptions used to calculate the rates are as follows: Rates are based on a $315,000 for conforming loans and $850,000 for non-conforming loans of an owner occupied, single-family residence with an 80% loan-to-value ratio, and rate lock ranging from 30 to 60 days. Rates are available for consumers for fico levels starting at 620 and up to 850. Rates are subject to change without notice. Quotes are for "no-cash-out" loans. All quotes are for products or loans that can be sold on the secondary market with no prepayment penalties nor negative amortization. Home Equity: The information on the daily averages includes financial product data that was in the Curinos database at the time of publication. Home Equity Loans - Rates are based on a fixed rate home equity loan for an owner-occupied residence, second lien, 15-year or 10- year repayment terms with an 80% loan-to-value ratio, Fico range of 740 and above, with a maximum loan amount of $50,000.00 . Home Equity Line of Credit - Rates are based on a variable rate, second lien revolving home equity line of credit for an owner-occupied residence with an 80% loan-to-value ratio, Fico range of 740 and above with a maximum line of credit of $50,000.00. Contact mediasupport@mortgageresearchcenter.com to have your rates included in this chart.

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Why people aren't buying vacation homes

In 2023, homebuyers took out 90,772 mortgages for second homes, which was a 40% decrease from 2022 and 65% lower than the 2021 level. The report notes that 2024 appears on track to be another slow year for vacation home purchases.

The number of primary home mortgages also declined significantly from 2022 to 2023, but only by half as much as mortgages for secondary homes (a 20% decrease vs. 40%).

There are multiple reasons for the steeper decline in second home purchases:

• The high cost of the typical vacation home ($475,000) led to reduced demand in 2023, Mahmood-Corley says. (The typical value of a primary home is $375,000, according to Redfin.)

• The Federal Housing Finance Agency raised loan fees for second-home mortgages in 2022.

• High mortgage rates are suppressing demand for primary homes as well as vacation homes. But rates are usually significantly higher for second-home loans because lenders know they’re riskier.

• Second home mortgages boomed during the pandemic when Americans had a greater ability to travel thanks to remote work policies. The shift back to more in-office work has made the idea of buying a vacation home less appealing overall.

• Lastly, fewer people are buying second homes with the plan to rent them out or list them as short-term rentals. Redfin said there’s less money to be made from those activities than there was two years ago.

Second-home mortgages made up only 2.8% of the total mortgage market last year, which is a decrease from 5.1% in 2020. Primary home mortgages represented an 88.6% share of all mortgages last year, while investment property mortgages were 8.6%.

Hot spots for second-home mortgages

In 2023, West Palm Beach, Florida, recorded the highest rate of second-home mortgage originations, which Redfin attributes to the city being “a popular destination for snowbirds and vacationers.”

Here are the top 10 metros with the highest shares of mortgages for second homes:

1. West Palm Beach, Florida: 6.6% (Median home value: $635,000)
2. Orlando, Florida: 4.1% (Median home value: $445,000)
3. Riverside, California: 4.0% (Median home value: $655,000)
4. New Brunswick, New Jersey: 3.9% (Median home value: $885,000)
5. Tampa, Florida: 3.6% (Median home value: $425,000)
6. Fort Lauderdale, Florida: 3.5% (Median home value: $445,000)
7. Phoenix, Arizona: 3.2% (Median home value: $535,000)
8. Las Vegas, Nevada: 3.1% (Median home value: $455,000)
9. Miami, Florida: 3.1% (Median home value: $715,000)
10. Anaheim, California: 2.9% (Median home value: $1,335,000)

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