Second-home mortgage market slumped in 2023: Redfin

In 2023, home purchases slowed across the board due to low levels of inventory, high mortgage rates and soaring home prices. Simultaneously, the appetite for second homes also diminished substantially. 

Nationwide, 90,772 mortgages for second homes were originated in 2023, down 40% from a year earlier and down 65% from the height of the post-pandemic housing boom in 2021, according to a new report from Redfin. By comparison, mortgage applications for primary homes were down 20% year over year in 2023 and down 35% compared to 2021.

The Redfin analysis relied upon data from the Home Mortgage Disclosure Act (HMDA) covering purchases of second homes, primary homes and investment properties from 2018 to 2023. 

There are several reasons why mortgages for second homes have declined more quickly than those for primary residences. First, it is more expensive to buy a second home. The typical second home was worth $475,000 in 2023, versus $375,000 for primary homes. Additionally, in 2022, the Federal Housing Finance Agency (FHFA) increased the fees for second-home loans purchased by Fannie Mae and Freddie Mac

Vacation homes are also more superfluous than primary homes, so it is natural for consumers to cut back on vacation home purchases when rates are elevated. Moreover, many companies are now requiring their employees to return to the office, taking away from the perks of having a vacation home. Lastly, the rental market is cooling compared to its  pandemic-era peak, which creates less of an incentive to invest in a property.

“Soaring prices pushed down demand for vacation homes last year, both for cash buyers and those getting a mortgage — but the latter pulled back even more because high rates exacerbated high prices,” Heather Mahmood-Corley, a Phoenix-based Redfin Premier agent, said in the report. 

“There has been a small uptick in interest in second homes this year, mostly from cash buyers who plan to eventually move in full time. People who would need a mortgage are still sitting on the sidelines, waiting for rates to come down — especially because rates are typically even higher for second homes than primary homes.”

Buyers of primary homes comprise the vast majority of mortgage originations. They took out 88.6% of loans in 2023, 87.2% in 2022 and 89.2% in 2020, according to Redfin estimates. 

By comparison, only 2.8% of all mortgages originated in 2023 went to second-home buyers, down from 3.6% in 2022 and 5.1% in 2021.

An early glance at this year’s data demonstrates that demand for second homes has yet to pick up, according to the report.  

Mortgage originations for second homes fell in all major U.S. metro areas on a yearly basis in 2023. Austin led the way with a 62.5% year-over-year decline. 

In general, expensive coastal cities posted the biggest declines in second-home mortgage originations. San Francisco posted a decrease of 57.6%, followed by New York (-53.6%), Seattle (-53%) and Nashville (-51.3%).

Meanwhile, relatively affordable metros in the Midwest and on the East Coast had relatively stable levels of second-home mortgage activity. These include St. Louis; Kansas City; Providence, Rhode Island; Montgomery County, Pennsylvania; and Warren, Michigan. 

West Palm Beach, Florida, had the largest share of second-home mortgage originations in 2023, as slightly less than 7% of all mortgages originated there were for second homes. 

It was followed by Orlando; Riverside, California; New Brunswick, New Jersey; and Tampa. But while the shares of second-home mortgages were largest in these metros, each of them still posted year-over-year declines in originations of at least 37%.

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