The number of buyers who locked in mortgage rates to purchase a second home nationwide rose 48 percent year-over-year in May. While still high, Redfin notes that it is the first time in a year the annual growth rate has fallen below 80 percent.
High prices are likely to blame for the slowdown, though Redfin analysts also note that many buyers who were in the market for second homes may have completed their purchases in mid- and late-2020.
Mortgage lending guidelines also changed earlier this year. Under new federal rules, second-home and investment property mortgages can make up just 7 percent of a lender’s total pipeline, representing tighter regulations.
“In addition to tighter lending rules, vacation-home buyers are starting to react to rising prices,” said Redfin Chief Economist Daryl Fairweather. “Home prices have been climbing rapidly for the last several months, and it seems they’ve finally gotten prohibitively high for some people searching for second homes. Vacation-home buyers are quicker to back away from properties that are potentially overpriced because they’re not a necessity. People searching for primary residences may have to shell out more money than they want to because they need a roof over their heads.”
Also noted in the Redfin report, demand for second homes jumped 110 percent last June, and the level remained high through April.