During the pandemic, vacation home sales soared and there is no better example of this than here in the South Florida market. In addition to the desires to social distance, the virtual work environment removed all boundaries for many American workers as they transitioned from an office cubicle to their computer screens across the country. Fast forward to the present time and we are seeing a completely different market. Although the inventory of both primary and vacation homes is still low, the biggest impact has been from rising interest rates. As of March 2023, interest rate locks for second homes were down 52% compared to pre-pandemic levels. As for primary homes, these interest rate locks were down by 13%. So just how low has the demand for vacation homes gotten? For perspective, second-home rate locks fell to their lowest level since 2016 in February 2023.
What has caused the decrease in second-home demand?
- Home prices: Not surprisingly, the cost to buy any home has risen substantially over the past several years. The typical second home was worth $465,000 in 2022 versus $375,000 for a primary home.
- Rising mortgage interest rates: Rising mortgage rates have impacted the entire housing market. As the Federal Reserve continues to attempt to rein in inflation, interest rates are expected to remain elevated. Needless to say, higher rates have greatly reduced buying power.
- Loan fees: The federal government increased loan fees for second homes in April 2022.
- Short-term rental demand has decreased: Many vacation home owners prefer to rent out their properties as short-term rentals. The demand for these short-term rentals has also decreased, leaving many buyers to think twice about a vacation home purchase.
- Stock market declines: The volatile stock market has resulted in many portfolios decreasing substantially. Inevitably, this has impacted the demand for vacation homes.
- Return-to-work rules: Although we have seen significant growth in the number of companies that have allowed a virtual work environment, many companies have also started demanding that their workforce return to the office. Even if only in a hybrid role, this has also greatly impacted the vacation home market.
Summary
During the pandemic, we saw a historic demand for vacation homes. In fact, mortgage-rate locks for second homes reached a peak of 89% above pre-pandemic levels in August 2020. Of course, since then we have seen various economic headwinds that have created challenges for the overall economy, including the vacation home market. As for the South Florida market, we continue to see high demand from many Americans opting to relocate to The Sunshine State permanently. This high demand combined with a low inventory of homes for sale has resulted in home prices remaining high, making it challenging for many buyers. Although higher interest rates are also a factor for this market, South Florida continues to attract many affluent cash buyers that are not impacted by these higher rates.
Are you thinking about buying a vacation home in South Florida? 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.
