Demand for vacation homes is wearing off. Here's why

Higher prices and stricter mortgage-lending rules are hindering second-home sales

The buzz on second home purchases is starting to cool off due in large part because of higher prices and stricter mortgage-lending rules, according to Redfin. 

Although the number of buyers who locked in mortgage rates to purchase a second home in May increased nearly 50% compared to a year ago, "it's the first time in a year the annual growth rate has fallen below 80%," according to the real estate brokerage. 


In June 2020, the demand for second homes surged, with second mortgage locks increasing 110% compared to a year earlier, according to Redfin. The level stayed high through April.

In May, however, the annual increase cooled to pre-pandemic levels. Although Redfin noted that year-over-year increases are likely "exaggerated" due to the fact that the pandemic hindered real estate activity a year ago. 

The slowdown this spring can be attributed to several factors, according to the report. For instance, "high prices are likely playing a role, as is the reopening of offices," Redfin said. 

A sale pending sign is displayed outside a residential home for sale in East Derry, N.H. (AP Photo/Charles Krupa, File)

On top of the fact that there is already a "typical spring slowdown," many homebuyers who desired another residence have already nabbed one over the pandemic.

Additionally, mortgage-lending rules over the last two months have tightened. Now, under the new rules, second-home and investment property mortgages can make up only 7% of a lender's total pipeline, which refers to the total number of loans that are either in processing, underwriting or closing process. 


However, home prices are have also been "climbing rapidly for the last several months" and have now "gotten prohibitively high for some people searching for second homes," said Redfin Chief Economist Daryl Fairweather. 

And since they're not a necessity, "vacation-home buyers are quicker to back away from properties that are potentially overpriced," Fairweather said. 

Although people searching for their primary home aren't out of the woods. 

Even they "may have to shell out more money than they want to because they need a roof over their heads," Fairweather added.