Sip your coffee and sit comfortably, folks. We’ve got quite a tale to spin about the slipping demand for vacation home mortgages. Picture this – These babies have sunk lower than a dachshund’s belly, hitting rock bottom for the first time in nearly eight years. Indeed, mortgage application rates for these getaways have taken a 65% nosedive since 2021.
But why, you ask? Well, look no further for the culprits. Rising mortgage rates, red-hot price points in vacation hotspots, and shrinking chances for remote work. Yep, all these culprits played their parts, according to the ever-reliable folks at Redfin, in turning this once thriving market into a ghost town.
“Uh-Oh, No One’s Buying Vacation Homes”
Check this out. In 2023, brave homebuyers managed to bag just 90,772 mortgages for second homes. Quite a slump, don’t you think? It’s a 40% drop from last year and a jaw-dropping, head-spinning 65% downfall from the glory days of 2021. And don’t think 2024 will be any better – the slow pace seems here to stay for now.
Don’t get it twisted though – it’s not just second homes feeling the heat. Primary home mortgages have also experienced a downturn between 2022 and 2023, but let’s be real, it’s only been half as painful as the second-home plunge (a 20% drop compared to 40%).
Well, you must be wondering why vacation homes are taking a harder hit, right? Let’s chalk it up to a few devilish details:
- The typical vacation home was priced at $475,000 last year, giving prospective buyers quite the sticker shock. Comparatively, Redfin informs us that the primary residences were much kinder to the wallet, at a median price of $375,000.
- In an ungracious move, the Federal Housing Finance Agency pushed up loan fees for second-home mortgages in 2022. Can you say buzzkill?
- High mortgage rates have rained on everybody’s parade but pouring even harder on vacation properties. Riskier business, lenders say.
- Remember how everybody was fleeing the cities for greener pastures and a home away from home during the pandemic days? Well, those days are over, buddies. With most folks back in the office, the allure of a getaway home has faded faster than a suntan in winter.
- The cherry on top – there’s less ‘ka-ching’ potential in snagging a second home for rental or short-term leasing. Looks like those dollar signs aren’t sparkling as brightly as they once were.
Fast forward to 2023, and second-home mortgages can only claim 2.8% of the total U.S. mortgage market, quite a tumble from the 5.1% glory days of 2020. Meanwhile, primary residences still rule the roost with 88.6%, and investment property loans aren’t too shabby either at 8.6%.
“The In-Crowd: Second-Home Mortgages Hotspots “
Let’s raise a glass to West Palm Beach, Florida for leading the pack in 2023 with the highest percentage of new second-home mortgages. I mean, who wouldn’t want to be a snowbird in this vibrant locale, eh? Here are the top 10 hot spots where vacation home mortgages were still happening:
- West Palm Beach, Florida: 6.6% (Median home value: $635,000)
- Orlando, Florida: 4.1% (Median home value: $445,000)
- Riverside, California: 4.0% (Median home value: $655,000)
- New Brunswick, New Jersey: 3.9% (Median home value: $885,000)
- Tampa, Florida: 3.6% (Median home value: $425,000)
- Fort Lauderdale, Florida: 3.5% (Median home value: $445,000)
- Phoenix, Arizona: 3.2% (Median home value: $535,000)
- Las Vegas, Nevada: 3.1% (Median home value: $455,000)
- Miami, Florida: 3.1% (Median home value: $715,000)
- Anaheim, California: 2.9% (Median home value: $1,335,000)
“Some More Food for Thought”
So there you have it, folks. The good, the bad, and the ugly of vacation home mortgages. Sit tight, because the rollercoaster ride isn’t quite over yet.