Demand for Second Homes Dropping on the Heels of Rising Rates and New Fees

Demand for vacation homes had been soaring since the beginning of the pandemic. In March of last year, the rate of second home mortgage locks reached a pinnacle when rates were nearly 90% higher than they were before the pandemic began. People from all over the country moved into remote work, enabling them to travel more and work from anywhere in the county. Another large group of Americans found themselves in a position where they were looking for a more enjoyable place to spend lockdown or quarantine. These two factors primarily drove the rush on second home purchases, especially in areas like the Florida Keys real estate market where vacation is a lifestyle. According to a recent Redfin report, however, the surge may be over. For two consecutive months, the rate of mortgage locks on second home purchases has fallen sharply, and now is at the lowest rate since May of 2020.

The root of the drop in demand is coming from the fact that purchasing a second home is getting more expensive. The rising interest rate has been widely reported. Anyone paying any attention to the market knows that rates have risen by 1.5% on average since 2022 began. Over the course of a 30 year loan, that makes a huge difference in the total amount of money paid as well as the monthly payment. For most Americans, having a higher monthly payments is a huge factor in determining whether purchasing a second home is worth it or not. According to the Redfin report, many are deciding that it is not.

Many Americans may not be aware that there is another, new, consideration when purchasing a second home. The Federal Housing Finance Agency charges an upfront fee on a mortgage for a second home. They recently passed an amendment that raises that rate an additional 1%-4% on the value of the loan, essentially adding thousands to tens of thousands on the cost of purchasing a second home. The new rates went into effect on April 1. This additional fee is making many question the soundness of the investment and is driving down demand.?

If you are looking to invest in real estate in the Keys or to purchase a vacation property in the Fl Keys, these are important considerations when determining your budget.