Redfin Chief Economist Daryl Fairweather said the numbers are likely exaggerated because demand for second homes dropped 24% year over year in April 2020, the month after the coronavirus pandemic permeated throughout the U.S. Still, second-home mortgage rate locks are holding steady at more than double pre-pandemic levels.
“The combination of the wealthy becoming wealthier, remote work turning into the new normal and low mortgage rates is creating an ideal environment for affluent Americans to buy vacation homes,” Fairweather said. “As long as the economy continues to grow, I don’t foresee demand for second homes slowing down anytime soon.”
The rise in demand for second homes is more than twice the increase for primary homes, with the number of buyers who locked in mortgage rates for primary homes rising 78% year over year in April. That’s a record jump too, Fairweather said, but should also be taken in context, as demand for primary homes dropped last April due to the pandemic.
The study showcases both sides of the COVID-19 crisis, with affluent Americans taking advantage of low mortgage rates and the ability to work from anywhere, and buying up high-end houses — particularly in popular vacation destinations. Meanwhile, many lower-income Americans have lost their jobs and lack the means to become homeowners.
New GSE guideline updates to Fannie and Freddie forces them to cap the amount of second home and investor properties delivered at 7%. This means a meaningful amount of supply will have to come to the non-QM Sector.
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When looking at the largest markets in the U.S., the biggest increase in luxury-home sales in the first quarter of 2021 was Miami, with sales up 101.1% from a year earlier. Miami was followed by San Jose (up 92.3%), Oakland (up 82%), and Sacramento, California (up 79.3%) and Las Vegas (up 72.7%).
Lack of inventory, which has reached a crisis point nationally, isn’t necessarily an issue in the luxury segment. In fact, the number of luxury homes for sale fell 5.1% year over year in the first quarter, the smallest decline of all five price tiers. The supply of affordable homes for sale, however, slumped 14.9%, and the supply of mid-priced homes dipped 19.8%.
“[Selling] isn’t as big of an issue for luxury homeowners since there’s a relative abundance of high-end homes to choose from,” Fairweather said.
The consequences of low inventory finally caught up with the broader housing market in February, with tightened supply largely responsible for a 10.6% drop in the number of homes in contract from the prior month, according to new data from the National Association of Realtors. Lawrence Yun, NAR chief economist, echoed Fairweather’s assessment, noting that only the “upper-end market” is experiencing more activity because of reasonable supply.
Home prices in seasonal towns, where second homes are often located, rose 27% year over year in April to $450,000. Prices in non-seasonal towns are up by a similar margin: 28% to $419,000.
“Non-seasonal price growth is slightly bigger than seasonal price growth this month partly because prices in non-seasonal towns dropped more significantly at this time last year,” Fairweather said.