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 intended for seasonal or recreational use, with a 28% decline from a quarter-over-quarter mortgage rate freezes across the country, data shows analyzed by Pacaso’s research team.
However, blocking rates for luxury second homes were 152% higher in Q3 2022 than in Q3 2019. In fact, every quarter from Q3 2020 to Q3 2022, blocking rates for luxury second homes more than doubled the level of the corresponding quarter of 2019, reports Pacaso.
“The pandemic has sparked an unprecedented and unsustainable demand for luxury second homes,” says Austin Allison, co-founder and CEO of Pacaso. “Remote working has become so prevalent that it has created a new normal for luxury second homes, and we should continue to see high demand in historical terms, even as market conditions pick up.”
Another important factor is the stock market. According to the National Association of Realtors, about half of second home buyers pay everything in cash, and their role in the market is not captured by rate lock data. These buyers tend to hold much of their wealth in stocks, exposing them to the vagaries of the stock market, which has lost significant ground since the start of the year.
Looking at regional data from the third quarter of 2022, Pacaso observed a steeper drop in rate locks in high-end 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 locations, 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 cheaper destinations closer to home.
Despite lower rate locks, luxury second homes held their value in the third quarter. Prices held up due to low inventory as sellers also looking to buy want to avoid trading a low mortgage rate for a high one.
“Market conditions are temporary, but remote working and the desire to spend time with your people in amazing places is here to stay,” Allison continues. “That’s why I remain bullish on long-term second homes, especially in luxury and despite the short-term challenges.”