Second-Home Demand Remains 60% Above Pre-Pandemic Levels: Trends and Analysis

Demand for second homes in the United States remains significantly elevated, standing 60% above pre-pandemic levels as of September. While this is a slowdown from the peak growth seen in March, it indicates a sustained shift in housing preferences, driven by remote work policies and fluctuating mortgage rates. This analysis is based on a seasonally-adjusted index of mortgage-rate lock data, a leading indicator of home purchase activity.

What is a Mortgage-Rate Lock and How Does It Measure Demand? A mortgage-rate lock is an agreement between a homebuyer and a lender that guarantees a specific mortgage interest rate for a set period, protecting the buyer from future rate increases. When applying, buyers must specify if the loan is for a primary residence, a second home, or an investment property. Because roughly 80% of these rate locks result in a purchase, they are a reliable indicator of market demand. For this analysis, "pre-pandemic" levels are defined as January and February 2020, set to an index of 100. A reading above 100 represents demand higher than that baseline.

Why Did Second-Home Demand Surge and Then Cool? The initial surge in vacation home popularity was a direct result of the coronavirus pandemic. With the widespread adoption of remote work, many affluent Americans seized the opportunity to leave urban centers. However, this demand began to moderate as cities lifted restrictions, the initial shock of the pandemic faded, and the spring homebuying season concluded. A policy change from Fannie Mae, a government-sponsored enterprise, also contributed. In March, Fannie Mae announced it would limit the number of second-home and investment-property loans it purchases from lenders, making such mortgages more challenging and expensive to obtain.

What Factors Are Influencing Second-Home Demand Now? Recent trends suggest a rebound from the summer slowdown. Based on our experience assessment, two key factors are at play. First, rising mortgage rates are creating a renewed sense of urgency among buyers to lock in rates before they climb further. Second, a significant regulatory shift occurred in September when the Treasury Department and Federal Housing Finance Agency announced the removal of the aforementioned Fannie Mae restrictions. This policy reversal is expected to support continued demand for second homes.

Is the Elevated Demand for Second Homes Sustainable? The data suggests that second-home demand is likely to remain above historical levels for the foreseeable future. The most significant sustaining factor is the permanent shift to remote work by major corporations, which fundamentally expands where people can live. Furthermore, the recent policy reversal provides easier access to financing for qualified buyers.

Key Takeaways for the Second-Home Market

• Current Demand is Robust: Despite cooling from its peak, the market for vacation homes is still substantially stronger than before the pandemic.
• Monitor Mortgage Rates: With rates on the rise, the window for favorable financing may be narrowing, creating urgency.
• Policy Environment is Supportive: The removal of lending restrictions by Fannie Mae is a positive development for buyers.
• Remote Work is a Long-Term Driver: Permanent remote-work policies from companies like Amazon signal a lasting change in housing needs.