Currently, the real estate sector connected to the seasonal holiday home sales is not in the best condition. The sharp growth in demand during the pandemic has resulted in a drastic drop in the market supply and a high increase in property prices.
After the pandemic, the sector was affected by economic problems, including rising inflation, new fees, raising interest rates on loans (note: up to 6% at the beginning of June), and a relatively small buyer base.
In general, in May 2022, the demand for these properties dropped below the basic level set before the beginning of the COVID-19 pandemic. Mortgage rates on loans for second homes declined by 4% compared to pre-pandemic levels. Just a month earlier, in April, this indicator was expected to be around 3% above the basic level. A year earlier, in May 2021, demand indicators were 70% higher than the basic level.
A specific fee introduced in April for second home buyers deserves special attention: an additional payment of $13,500 for the purchase of a housing unit worth $400,000 or more.
At the same time, monthly rental payments for holiday homes grow quickly. Along with rising loan rates and property prices, it makes market entry difficult for new buyers.
Second homes are not essential. So, with declining benefits from the purchase, economic and stock market problems, and fears of a possible recession, buyers prefer to delay the acquisition of this real estate for the future and instead concentrate on different investments, including investments in their permanent accommodation.
The drop in demand is unlikely to stop as long as the Federal Reserve continues to raise the key rate. March 2021 was the peak period for the holiday home. At that time, demand was 90% higher than the basic pre-pandemic indicators.