Demand for vacation homes surged in September, jumping 60% compared to pre-pandemic levels, according to a new report.
The recent surge in demand marks an uptick from July when there was a 40% increase in demand for second homes. However, it still doesn't top March's record growth at 112%, according to a report from real estate brokerage Redfin.
At the beginning of the pandemic, when lockdown orders were fully in place, consumers were jumping at the chance to leave the city life to nab a vacation home while working remotely, according to Redfin.
However, as cities loosened virus-related restrictions, "the initial shock of the pandemic faded, spring homebuying season ended and the overall housing market began to cool," the real estate brokerage said.
Redfin deputy chief economist Taylor Marr noted that a rule from mortgage loan company Fannie Mae, which limited the number of second home and investment property loans it would buy, also contributed to the slowdown over the summer.
Essentially, the rule made it even harder and more expensive for homebuyers to take out mortgages on vacation homes, according to Redfin.
Marr said the "market may have overreacted to the Fannie Mae rule a bit, which would explain why we've been seeing demand for second homes bounce back."
That on top of rising mortgage rates is "likely creating a renewed sense of urgency for vacation-homes for homebuyers" who may want to snag a second home before rates continue to climb, Marr added.
The average rate on a 30-year mortgage climbed to 3.09% as of Oct. 21, the highest level since April, when it peaked at 3.18%, according to Freddie Mac.
Economists project that signals from the Fed and signs that inflation remains pervasive set the stage for mortgage rates to move even higher in the coming months.
"The biggest influence is that the Federal Reserve is poised to start dialing back their bond purchases as soon as next month," said Greg McBride, chief financial analyst at Bankrate. "However, in the months ahead inflation will likely be the single biggest determinant of what happens with mortgage rates. Whether or not they go higher, and if so, how much higher."
McBride expects that long-term mortgage rates will average between 3% and 4% over the next 12 months.
The Associated Press contributed to this report.