Austin and the Bay Area saw the biggest
declines in mortgages for second homes in 2023. Many of the people
who did take out mortgages for second homes last year were high
earners, white and/or Gen Xers.
(NASDAQ: RDFN) — U.S. homebuyers took out 90,772 mortgages for
second homes in 2023, down 40% from a year earlier and down 65%
from the height of the pandemic housing boom in 2021, according to
a new report from Redfin (redfin.com), the technology-powered real
estate brokerage.
Mortgages for primary homes fell at half that rate; they were
down 20% year over year in 2023 and down 35% from 2021.
This is according to a Redfin analysis of Home Mortgage
Disclosure Act (HMDA) data covering purchases of second homes,
primary homes and investment properties from 2018 to 2023. The term
“vacation home” is used interchangeably with “second home” in this
report.
Home purchases fell across the board last year due to low
inventory, high mortgage rates, and high home prices; 2023 was the
least affordable year on record. Affordability hasn’t improved in
2024; monthly housing costs are at an all-time high. Mortgages for
second homes dropped more than mortgages for primary homes for
several reasons:
- It’s more expensive to buy a second home. The typical second
home was worth $475,000 in 2023, versus $375,000 for primary homes.
Additionally, the federal government increased loan fees for second
homes in 2022, upping the total cost of buying one.
- Vacation homes aren’t a necessity the way primary homes are, so
when housing costs skyrocket, many prospective second-home buyers
back off.
- Purchasing a second home for your own use is a less attractive
proposition than it was a few years ago because many companies are
now requiring their employees to return to the office, meaning
there’s less time to spend in vacation homes.
- Purchasing a second home to rent it out is also a less
attractive proposition than it once was because the rental market
has cooled from its pandemic peak, and owners of short-term rentals
on sites like Airbnb are generally earning less revenue.
“Soaring prices pushed down demand for vacation homes last year,
both for cash buyers and those getting a mortgage—but the latter
pulled back even more because high rates exacerbated high prices,”
said Phoenix Redfin Premier agent Heather Mahmood-Corley. “There
has been a small uptick in interest in second homes this year,
mostly from cash buyers who plan to eventually move in full time.
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.”
Just 3% of all mortgages went to second-home buyers in 2023,
down from 5% in 2020
The share of total mortgages that went to second-home buyers
also dropped last year: 2.8% of all mortgage originations in 2023
were for second homes, down from 3.6% in 2022 and 5.1% in 2021.
The vast majority of mortgages go to buyers of primary homes:
They took out nearly nine in 10 (88.6%) mortgages in 2023, 87.2% in
2022 and 89.2% in 2020. The remainder go to those buying investment
properties, with 8.6% of all mortgages taken out in 2023 used for
investment properties, compared with 9.2% in 2022 and 5.9% in
2020.
Vacation-home demand hasn’t picked up in 2024
An early look at this year’s data shows that demand for second
homes hasn’t picked up in 2024. Mortgage-rate locks for second
homes have been sitting near their eight-year low since the
beginning of this year, according to a separate Redfin analysis of
data from Optimal Blue. They declined 7.3% from a year earlier in
April. By comparison, mortgage-rate locks for primary homes
declined 1.6%.
Please note that Optimal Blue data is different from the HMDA
data used in the rest of this report. Optimal Blue data is a
leading indicator because it measures mortgage-rate locks (an
agreement between a buyer and a lender that locks in a rate for a
period of time; roughly 80% result in home purchases) as opposed to
mortgage originations, and it includes a sample of U.S. mortgages
rather than all U.S. mortgages.
The people who are buying vacation homes: Affluent, white,
Gen X
High earners: The vast majority of people who took out
mortgages for vacation homes in 2023 were—unsurprisingly—high
earners. Nearly nine in 10 (86%) second-home mortgages issued last
year went to high-income buyers. Just under 3% went to low-income
buyers. (The nationwide median household income of home purchasers
in the HMDA data is $178,000 for high-income buyers and $65,000 for
low-income buyers.)
White people: Nearly four in five (79%) vacation-home
mortgages went to white homebuyers in 2023. Asian and Hispanic
homebuyers come next, with 6.4% and 6.2% of new vacation-home
mortgages, respectively. Buyers who identify as more than one race
took out 5.4% of second-home mortgages, and Black buyers took out
2.7%.
Gen Xers: 29.5% of vacation-home mortgages went to 55-64
year olds in 2023, and another 28.6% went to 45-54 year olds (Gen
Xers were 43-58 in 2023). Next come 35-44 year olds (21%), 65-74
year olds (11.4%) and people under 35 (6.9%).
Second-home mortgages dropped most in Austin and the Bay
Area
Mortgage originations for second homes fell in all major U.S.
metros last year. They fell most in Austin, TX, with a 62.5%
year-over-year drop in 2023. Austin’s housing market slowed
substantially across the board last year as the pandemic migration
boom waned and housing costs climbed too high for many locals. The
next-biggest declines for second-home mortgages were mostly in
expensive coastal cities: San Francisco (-57.6%), New York
(-53.9%), Seattle (-53%) and Nashville, TN (-51.3%).
The smallest declines in second-home mortgages were in
relatively affordable metros in the middle of the country and on
the East Coast: St. Louis (-25.2% year over year), Kansas City, MO
(-31.1%), Providence, RI (-31.1%), Montgomery County, PA (-32.1%)
and Warren, MI (-32.1%).
Second homes are most common in Florida
Second-home mortgages made up the largest share of all mortgage
originations in West Palm Beach, FL, a popular destination for
snowbirds and vacationers, in 2023. Just under 7% of all mortgage
originations in the West Palm Beach metro last year were for second
homes. Next come Orlando, FL (4.1%), Riverside, CA (4%), New
Brunswick, NJ (3.9%) and Tampa, FL (3.6%). Even though the share of
second-home mortgages was largest in those places of all the major
U.S. metros, they were still down at least 37% year over year.
To view the full report, including a chart, methodology and
metro-level breakdown, please visit:
https://www.redfin.com/news/vacation-home-mortgages-decline-2023/
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate
company. We help people find a place to live with brokerage,
rentals, lending, title insurance, and renovations services. We run
the country's #1 real estate brokerage site. Our customers can save
thousands in fees while working with a top agent. Our home-buying
customers see homes first with on-demand tours, and our lending and
title services help them close quickly. Customers selling a home
can have our renovations crew fix it up to sell for top dollar. Our
rentals business empowers millions nationwide to find apartments
and houses for rent. Since launching in 2006, we've saved customers
more than $1.6 billion in commissions. We serve more than 100
markets across the U.S. and Canada and employ over 4,000
people.
Redfin’s subsidiaries and affiliated brands include: Bay Equity
Home Loans®, Rent.™, Apartment Guide®, Title Forward® and
WalkScore®.
For more information or to contact a local Redfin real estate
agent, visit www.redfin.com. To learn about housing market trends
and download data, visit the Redfin Data Center. To be added to
Redfin's press release distribution list, email press@redfin.com.
To view Redfin's press center, click here.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240513346416/en/
Redfin Journalist Services: Isabelle Novak, 414-861-5861
press@redfin.com
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