Redfin Reports Demand For Vacation-Home Mortgages Fell 40% in 2023 As Housing Costs Rose to Record High

(NASDAQ: RDFN) — U.S. homebuyers took out 90,772 mortgages for second homes in 2023, down 40% from a year earlier and down 65% from the height of the pandemic housing boom in 2021, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

Mortgages for primary homes fell at half that rate; they were down 20% year over year in 2023 and down 35% from 2021.

This is according to a Redfin analysis of Home Mortgage Disclosure Act (HMDA) data covering purchases of second homes, primary homes and investment properties from 2018 to 2023. The term “vacation home” is used interchangeably with “second home” in this report.

Home purchases fell across the board last year due to low inventory, high mortgage rates, and high home prices; 2023 was the least affordable year on record. Affordability hasn’t improved in 2024; monthly housing costs are at an all-time high. Mortgages for second homes dropped more than mortgages for primary homes for several reasons:

• It’s more expensive to buy a second home. The typical second home was worth $475,000 in 2023, versus $375,000 for primary homes. Additionally, the federal government increased loan fees for second homes in 2022, upping the total cost of buying one.
• Vacation homes aren’t a necessity the way primary homes are, so when housing costs skyrocket, many prospective second-home buyers back off.
• Purchasing a second home for your own use is a less attractive proposition than it was a few years ago because many companies are now requiring their employees to return to the office, meaning there’s less time to spend in vacation homes.
• Purchasing a second home to rent it out is also a less attractive proposition than it once was because the rental market has cooled from its pandemic peak, and owners of short-term rentals on sites like Airbnb are generally earning less revenue.

“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,” said Phoenix Redfin Premier agent Heather Mahmood-Corley. “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.”