The third quarter of 2022 marked the end of the pandemic real estate boom for luxury second homes, or homes selling for $1 million or more that are designated for seasonal or recreational use, with a 28% quarter-over-quarter decline in mortgage rate locks across the country, according to data analyzed by Pacaso’s research team.
However, luxury second-home rate locks were 152% higher in Q3 2022 than they were in Q3 2019. In fact, every quarter from Q3 2020 to Q3 2022 saw rate locks on luxury second homes clock in at more than double the level in the corresponding quarter of 2019, reports Pacaso.
“The pandemic unleashed unprecedented, unsustainable demand for luxury second homes,” says Austin Allison, co-founder and CEO of Pacaso. “Remote work has become so prevalent that it’s created a new normal for luxury second homes, and we should continue to see elevated demand in historical terms even as market conditions take the froth off.”
Adam McAbee, Zonda’s senior vice president of advisory and lead in the second home space added “the lack of state income tax and strong in-migration also continue to be a pull for buyers – particularly those that might use the home for future retirement. We live in San Diego, and one of our good friends recently bought a second home in Jacksonville, for all of the same reasons.”
Another important factor is the stock market. According to the National Association of Realtors, about half of second-home buyers pay all cash, and their role in the market isn’t captured by rate lock data. These buyers tend to hold much of their wealth in equities, exposing them to the ups and downs of the stock market, which has lost considerable ground since the beginning of the year.
Reviewing regional data for Q3 2022, Pacaso observed a steeper decline in rate locks in premium destination communities, such as Honolulu (-66.7%), Breckenridge, Colorado (-62.5%), and Santa Barbara, California (-56.7%).
But, it saw an increase in more affordable locales, such as Washington County, Utah (450%), Belknap County, New Hampshire (183.3%), and Currituck County, North Carolina (160%), suggesting that buyers are adjusting their second-home purchases to account for market conditions by opting for less expensive destinations closer to home.
Despite the decline in rate locks, luxury second homes maintained their value in the third quarter. Prices have held up due to low inventory, as sellers who are also seeking to buy want to avoid trading a low mortgage rate for a high one.
“Market conditions are temporary, but remote work and the desire to spend time with your people in amazing places are here to stay,” continues Allison. “That’s why I remain bullish on second homes in the long run, especially in the luxury tier and despite the short-term challenges.”
