Second-Home Mortgage Demand Plummets 40%: 2024 Trends and Buyer Profile

The demand for mortgages on second homes fell by 40% in 2023, a decline twice as steep as that for primary residences. This sharp drop reflects a market reshaped by record-high housing costs, increased loan fees, and shifting work-from-home policies. Early 2024 data indicates this trend is continuing, with second-home mortgage interest sitting near an eight-year low. This article breaks down the key drivers, the demographics of today's buyers, and the metropolitan areas experiencing the most significant shifts.

Why Did Second-Home Mortgage Demand Drop So Sharply?

The decline in second-home purchases is attributable to a confluence of financial and lifestyle factors that made buying a vacation property less attractive in 2023.

• Higher Overall Costs: A second home is typically more expensive than a primary residence. In 2023, the median value of a mortgaged second home was $475,000, compared to $375,000 for a primary home. Furthermore, a 2022 federal policy change increased loan fees specifically for second homes, adding to the total cost of acquisition.
• Discretionary vs. Essential Spending: A primary home is a necessity; a vacation home is a luxury. When housing affordability reached a record low in 2023, many prospective buyers chose to delay their second-home plans.
• Shift in Remote Work Policies: With many companies mandating a return to the office, the utility of a vacation home diminished for buyers who planned to use it for extended remote work periods.
• Cooling Rental Market: For buyers considering a property as a short-term rental, the financial incentive has decreased. The rental market has cooled from its pandemic peak, leading to lower revenue for owners on platforms like Airbnb.

Based on our experience assessment, these factors collectively pushed demand downward, with the drop in mortgage-backed purchases being more pronounced than those made with cash.

Who Is Still Buying Second Homes in the Current Market?

The profile of a typical second-home buyer in 2023 was distinct, characterized by higher income and older age.

The data indicates that the current market for mortgaged second homes is predominantly accessible to affluent households. The term "high-income" in this context is based on Home Mortgage Disclosure Act (HMDA) data, where the median household income for this group was $178,000.

Which Metro Areas Saw the Biggest Declines?

The decrease in second-home mortgage originations was a national trend, but the magnitude varied significantly by location. Expensive coastal metros and pandemic boomtowns saw the most dramatic drops.

• Austin, TX: -62.5%
• San Francisco, CA: -57.6%
• New York, NY: -53.9%
• Seattle, WA: -53%
• Nashville, TN: -51.3%

Conversely, more affordable metros in the Midwest and East Coast experienced relatively smaller declines. Areas like St. Louis, MO (-25.2%) and Kansas City, MO (-31.1%) demonstrated more resilience in second-home buying activity.

What Is the Outlook for Second-Home Demand in 2024?

Early indicators for 2024 suggest a continued slump. Mortgage-rate locks—an agreement between a buyer and lender to secure an interest rate, and a leading indicator of home purchases—for second homes remained near their eight-year low through April 2024, declining 7.3% year-over-year.

"The market for mortgaged second homes remains challenging," notes a real estate professional. "Cash buyers are showing some interest, but those who need financing are waiting for mortgage rates to decrease, especially since rates for second homes are often higher than for primary residences."

The key takeaway for potential buyers is that while the second-home market has cooled significantly, it is now dominated by high-income, cash-ready individuals. If you are considering a purchase, securing financing pre-approval and understanding the higher associated costs are critical first steps. The market dynamics suggest that affordability, rather than desire, is the primary barrier for most Americans.