SEATTLE, WA — Despite the fantasy of a cozy vacation home nestled in a beachfront or mountain setting, this dream hit a hard reality in 2023. Data from Redfin, a premier real estate brokerage agency, reveals that American homebuyers took out 90,772 mortgages for second homes in 2023, a dramatic 40% drop from the prior year and a catastrophic 65% tumble from the zenith of 2021’s pandemic housing boom.
In contrast, mortgages for primary homes witnessed a slower fall, dropping only 20% in 2023 and 35% from 2021. Unsurprisingly, the lion’s share of mortgages continued to go to buyers of primary homes. In 2023, these represented almost nine in ten (88.6%), a slight uptick from 87.2% in 2022 and 89.2% in 2020.
Notably, the cost and feasibility of owning a second home played a significant role in this downturn. The typical second home cost $475,000 in 2023, a sizeable amount compared to the average primary home priced at $375,000. The federal government’s increase in loan fees for second homes in 2022 only added to the buyers’ woes, making the total cost of buying a vacation home significantly higher.
As the cost of living continues to rise, with 2023 marking the least affordable year on record and 2024 showing no sign of respite, the dream of owning a second home seems to be only viable for the affluent, a trend that can exacerbate the already striking wealth inequality in the country.
The data also uncovers a societal reality. The majority of purchasers of vacation homes are white, high-earning Gen X individuals, proving that the affordability crisis disproportionately affects racially diverse and lower-income brackets. This reinforces the systemic issue of wealth concentration in a specific demographic group.
Another factor steering potent buyers away from a second home is the changing employment landscape. As companies increasingly summon their employees back to the office, the appeal of owning a vacation home for personal use diminishes.
Moreover, the rental market cooling from its pandemic peak makes it less attractive to invest in a second home for rental purposes. With short-term rental operators, such as Airbnb, generally earning less revenue, the prospect of quick financial gains dampens significantly.
Based on the patterns of 2023, the future direction of second-home mortgages seems uncertain. In Austin, Texas, which saw the most substantial drop in second homes mortgages at 62.5%, the soaring housing costs have slowed the hitherto booming market. On the other hand, relatively affordable regions like St. Louis and East Coast cities, witnessed smaller declines in second-home mortgages, suggesting potential for resilience and recovery in these areas.
As we move deeper into 2024, the harsh reality seems to be that the dream of owning a vacation home is increasingly becoming an unattainable luxury for the majority of Americans. This could, in turn, significantly impact the future housing market trends and the economic trajectory of the nation.
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