The demand for vacation homes in the U.S. has significantly declined, with second-home mortgage originations dropping to their lowest level since 2018. According to a recent Redfin report analyzing Home Mortgage Disclosure Act (HMDA) data from 2018 to 2024, U.S. homebuyers took out 86,604 mortgages for second homes in 2024, a 5% decrease from the previous year. This marks a notable slowdown in the rate of decline compared to 2022 and 2023, when second-home mortgages plummeted by 42% and 40%, respectively. This article explores the reasons behind the declining vacation home demand, regional trends, and the demographics of buyers still entering the market.
Why Is Vacation Home Demand Declining?
Several factors are contributing to the reduced interest in second homes, which made up just 2.6% of all mortgages in 2024—the lowest share on record, down from a peak of 5% in 2020. Here’s a closer look at the key drivers:
- High Costs and Affordability Challenges: 2024 was the second-least affordable year for homebuying due to soaring home prices and high mortgage rates. Second homes, with a median value of $495,000 compared to $385,000 for primary homes, are significantly more expensive. Additionally, loan fees for second homes increased in 2022, further raising the cost of ownership.
- Non-Essential Nature of Vacation Homes: With inflation driving up the cost of living in 2024, many Americans are prioritizing essential expenses. Vacation homes, often seen as a luxury, are among the first to be cut when budgets tighten, especially in a cooling housing market.
- Cooling Rental Market: The appeal of purchasing second homes for rental income has waned. Asking rents have stagnated, and the short-term rental market, including platforms like Airbnb, has cooled from its pandemic-era peak, reducing the financial incentive for investors.
- Return to In-Office Work: The shift back to in-office work has limited the time many workers can spend at vacation homes. The flexibility of remote work during the 2020-2021 pandemic fueled a vacation-home boom, but that demand has softened as employers call workers back to offices.
- Rising Insurance and Maintenance Costs: High insurance costs, particularly in areas prone to natural disasters, are deterring buyers. In addition, higher mortgage rates also continue to be a factor.
Florida Leads in the Vacation Home Decline
Florida saw the sharpest declines in vacation-home demand among major metros:
- Miami: -32.2%
- Orlando: -28.4%
- Fort Lauderdale: -28%
- West Palm Beach: -23.7%
- Tampa: -20.9%
The Sunshine State’s declining appeal is linked to rising property taxes, insurance premiums, and HOA fees, along with concerns over natural disasters and climate risks, which have made many potential buyers wary of future home values.
However, West Palm Beach still recorded the highest share of second-home mortgages in the nation (5.6%), followed by New Brunswick, NJ (4.2%) and Riverside, CA (3.5%).
Who is Still Buying Vacation Homes?
Despite the overall decline, certain demographics continue to invest in second homes. Redfin’s analysis reveals:
- High-Income Buyers: In 2024, 86.4% of second-home mortgages went to high-income buyers with a median household income of $280,000. Only 7.5% went to middle-income buyers ($96,000 median income), and 2.7% to low-income buyers ($64,000 median income).
- Gen X and Baby Boomers: Gen Xers (ages 45-64) accounted for 58.6% of second-home mortgages, with 30.2% from 55-64 year olds and 28.4% from 45-54 year olds. Baby boomers (ages 65-74 and 74+) were the only group to increase their second-home mortgage originations, up 4.5% and 8.6%, respectively.
- White Homebuyers: White buyers dominated the market, securing 79.7% of second-home mortgages, compared to 6.4% for Asian buyers, 6% for Hispanic buyers, and 2.6% for Black buyers.
Summary
The vacation home market is cooling, but the slowdown in the rate of decline (from 40% in 2023 to 5% in 2024) suggests the market may be stabilizing. However, high costs, economic pressures, and regional challenges like those in Florida could continue to suppress demand. For buyers still in the market, strategies have shifted. Even wealthy cash buyers are now more likely to make low-ball offers or request concessions, reflecting a more cautious approach.
For those considering a vacation home, staying informed about market trends, mortgage rates, and regional risks is crucial. As affordability remains a challenge, prioritizing financial flexibility and exploring less saturated markets could offer opportunities for savvy buyers.
Are you thinking about buying or selling a vacation home in the South Florida area? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, don’t forget to download the free Florida Home Search App for your smartphone or tablet!
