Demand for vacation homes has hit a 7-year low, according to a new report from Redfin. Perhaps no other market was a bigger beneficiary of the booming vacation home market than right here in South Florida. As more employers allowed their employees to work remotely throughout the pandemic and in the period after, many Americans opted to settle in a vacation home and work from paradise. Of course, the skyrocketing demand for vacation homes could not last forever. Interestingly, this report also found that mortgage-rate locks for second homes were down 47% from pre-pandemic levels on a seasonally adjusted basis in August. This figure was even higher than the 33% decline seen for primary homes. So why has the demand for vacation homes plummeted so abruptly? We discuss some of the likely reasons below.
Reasons for a drop in vacation homes
- High home prices: For starters, the cost of vacation homes has risen dramatically over the past several years. This has made it more difficult to afford a second home, particularly in popular markets such as South Florida.
- Rising interest rates: As of this week, the 30-year, fixed-rate mortgage rose to 7.18% this week. Needless to say, this has brought on even more affordability challenges.
- Persistent inflationary pressure: High inflation continues to be a persistent headwind for the overall economy. As of August 2023, core inflation rose again by 0.3% after increasing by 0.2% the previous two months.
- More employees are returning to work: The return-to-office mandates that many employers have implemented are making it more difficult for people to justify owning a vacation home. If you have to go to the office every day, it is less likely that you will be able to use your vacation home as often as you would like.
- Stock market downturn: The stock market downturn has also made some people more cautious about spending money on discretionary items like vacation homes. When the stock market is down, people tend to have less money to spend on luxury items.
Although the housing market overall has cooled off some over the past year and half, the vacation home market has slowed down even further. In addition to the reasons cited above, the slowing economy is certainly to blame. Although we have technically already been in a recession, some economists feel that we may see a deeper recession as we head into 2024. Nonetheless, vacations and vacation home rentals are one of the first budget items to be reduced or eliminated during economic downturns. Therefore, it is expected that the demand for vacation homes will decrease in the foreseeable future.
Although the vacation home market has slowed, locations like South Florida will continue to see a higher demand than most of the rest of the country. Are you thinking about buying or selling real estate in South Florida? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, be sure to download the free Florida Home Search app for your smartphone or tablet.