Continued low inventory and high mortgage rates and home prices are being blamed for the slowdown, as the report shows 2023 was the least affordable year on record.
“Affordability hasn’t improved in 2024,” the report states. “Monthly housing costs are at an all-time high.”
As a result, many prospective second-home buyers are playing the waiting game, while others now deem a vacation home as a less attractive option. The vacation rental market has also cooled from previous years, with owners of short-term rentals earning less revenue.
The Austin, Texas, metropolitan area had the biggest loss in second-home mortgage applications in 2023, with a 62.5 percent drop year-over-year, followed closely by metropolitan San Francisco at 57.6 percent, New York City at 53.9 percent (including the popular Hamptons destinations on Long Island), and Seattle at 53 percent.
Interest rates have climbed over the past week, while mortgage applications have declined, says the Mortgage Bankers Association, a national organization based in Washington.
“Mortgage rates moved slightly higher last week, with the 30-year conforming rate reaching 7.07 percent—its highest level since early May,” said Mike Fratantoni, MBA senior vice president and chief economist. “After adjusting for the Memorial Day holiday, both purchase and refinance application volumes were down, with purchase activity specifically 13 percent below last year’s level.”
The Boston metropolitan area saw a 43.9 percent drop in mortgage applications, and Cape Cod—a nearby popular vacation destination for many Bostonians—is experiencing a similar situation. Amy Marseglia, broker associate with William Raveis Real Estate in Eastham, Cape Cod, said that while there are a high number of potential buyers, the lack of inventory is holding them back.
“Housing inventory has been suppressed here for a few years now, and the people who still want homes are backing up,” she told The Epoch Times.
Another reason mortgage applications are down is that many buyers are offering cash.
“It’s a desirable location, and there are a lot of people coming in with cash offers to buy something here,” Ms. Marseglia said. Some are purchasing second homes for themselves or as vacation-rental income.
Typically, homes in good condition are being scooped up almost as soon as they come onto the market, and bidding wars are still common.
“It depends on the price point as to how much over the asking price a potential buyer will offer,” Ms. Marseglia said. “Homes priced over $1 million will tend to get much higher over-asking amounts.”
Last year, just 3 percent of all mortgages nationwide went to second-home buyers, representing a 5 percent drop from 2020. In 2023, 29.5 percent of vacation-home mortgages went to people aged 55 to 64, 28.6 percent to people aged 45 to 54, 21 percent to those aged 35 to 44, 11.4 percent to those aged 65 to 74, and 6.9 percent to people under 35.
The Redfin report also states that 86 percent of people who took out mortgages for vacation homes in 2023 were high earners with a national median household income of $178,000. Caucasian homebuyers accounted for 79 percent of vacation-home mortgages, while Asian and Hispanic homebuyers accounted for just 6.4 percent and 6.2 percent, respectively. African American buyers took just 2.7 percent of those mortgages.
“Most of the buyers I’m working with now fall in that Gen X range, but I do see a lot of early ‘boomers’ as well,” Ms. Marseglia said. On the selling side, she indicated that some people are either upsizing or downsizing on the Cape or moving away from the area.
Second-home mortgages remained very popular throughout Florida, with West Palm Beach showing the largest share of all mortgage originations with almost 7 percent. Orlando and Tampa were the next top spots in the Sunshine State, with 4.1 percent and 3.6 percent, respectively.
David Serle, president of Broward, Palm Beaches & St. Lucie Realtors, told The Epoch Times that the second home market has cooled a bit on Florida’s east coast, just north of Miami.
“A lot of people are still paying cash, and if they are taking a mortgage, they’re making significantly higher down payments to keep the monthly mortgage payments lower,” he said.
He said the single-family market is good, while condo sales are slower.
“I think that may be due to increasing condo fees and assessments that could be preventing people from making purchases,” he said.
Most of his clients are looking for vacation properties to use for themselves, while some do intend to rent them out at least some of the time. With the median price of a single-family home at about $650,000, the area is very attractive to people who are looking to get more for their money than in Miami.
“We’re seeing a big influx from California, and the international market seems to be coming back,” he said.
Inventory remains lower than normal—with about 4.4 months’ supply—adding to the current sellers’ market. Since Florida usually doesn’t experience seasonal climates, potential buyers are looking for properties all year round.
The smallest declines in second-home mortgages in 2023 were in relatively affordable metropolitan areas in the middle of the country and on the East Coast: the Missouri cities of St. Louis (dropping 25.2 percent from a year earlier) and Kansas City (31.1 percent); Providence, Rhode Island (31.1 percent); Montgomery County, Pennsylvania (32.1 percent); and Warren, Michigan (32.1 percent).
