Remote work and low-interest rates continue to push U.S. home buyers toward vacation homes.
Demand for secondary residences increased 77% in December compared to pre-pandemic levels, according to a report Thursday from Redfin.
“The wealthy are still flush with cash and have access to cheap debt, which is why second-home purchases remain far above pre-pandemic levels,” Daryl Fairweather, Redfin’s chief economist, said in the report.
Interest has been increasing after hitting a low in August, although December marked a slight decline from the previous month, when demand was up 80%, the data showed. The record was set in January 2021, when demand rose 92% over pre-pandemic levels.
Last month’s slowdown is attributable to the holiday season, and does not necessarily mean demand is dwindling, according to the report. On the contrary, Ms. Fairweather predicted demand for vacation properties will be strong in 2022.
“While interest in second homes is stabilizing after the big boom in the second half of 2020 and the beginning of 2021, I expect demand to remain high well into this year,” she continued. “Remote work isn’t going anywhere and mortgage rates are still quite low.”
Redfin analyzed seasonally adjusted mortgage-rate lock data from real estate analytics firm Optimal Blue for the report. A mortgage-rate lock is an agreement between a lender and a buyer that freezes an interest rate for a specified amount of time. Home buyers specify if they are looking to finance a primary home, a second home or an investment property, and about 80% of mortgage-rate locks result in a home purchase.
Vacation homes are in demand since the pandemic, but which hot spots are consumers targeting that offer some of the best investment potential?
Vacasa, a vacation rental management platform, released its 2021 Top 25 Best Places to Buy a Vacation Home report, identifying the top U.S. destinations for purchasing a vacation rental property. Among other factors, researchers factored in average cap rate or yearly rate of return in determining the rankings.
“Market conditions are always shifting, but the accelerated and lasting adoption of short-term rentals during the pandemic has had a clear impact on second-home sales,” said Shaun Greer, vice president of sales and marketing at Vacasa. “The spike in guest demand and preference for new, more remote destinations is changing where prospective buyers can find the best investment properties.”
Gatlinburg, Tenn., topped this year’s list, climbing four spots from 2020. Newcomer cities claimed more than half of the spots in 2021, including Deep Creek Lake, Md., Cle Elum, Wash., Litchfield Beach, S.C., and Twentynine Palms, Calif.
The following are the top 25 places to buy a vacation home in 2021, according to Vacasa’s rankings:
Gatlinburg, Tenn.: $320,111 (median home sale price)
St. Augustine, Fla.: $365,576
Gulf Shores, Ala.: $402,905
Dauphin Island, Ala.: $382,699
Norris Lake, Tenn.: $343,907
Blue Ridge, Ga.: $290,934
Palm Springs, Calif.: $539,370
Deep Creek Lake, Md.: $439,367
Seaside, Ore.: $466,086
Ludlow, Vt.: $346,950
Big Bear, Calif.: $372,667
Rockaway Beach, Ore.: $330,831
Cle Elum, Wash.: $551,586
Big Sky, Mont.: $850,000
Twentynine Palms, Calif.: $263,897
Killington, Vt.: $317,336
Bear Lake, Utah: $383,734
Litchfield Beach, S.C.: $499,259
Pagosa Springs, Colo.: $361,320
Banner Elk, N.C.: $331,290
St. George Island, Fla.: $471,501
Ellijay, Ga.: $281,402
Florissant, Colo.: $367,000
Corolla, N.C: $608,953
Holden Beach, N.C.: $580,847
View more information on each place as well as the cap rates at vacasa.com.
The pandemic created a tremendous interest in vacation homes across the country. Throughout the last year, many people purchased second homes as a safe getaway from the challenges of the health crisis. With many professionals working from home and many students taking classes remotely, it made sense to see a migration away from cities and into counties with more vacation destinations.
The 2021 Vacation Home Counties Report from the National Association of Realtors (NAR) shows that this increase in vacation home sales continues in 2021. The report examines sales in counties where “vacant seasonal, occasional, or recreational use housing account for at least 20% of the housing stock” and compares that data to the overall residential market.
Their findings show:
Vacation home sales rose by 16.4% to 310,600 in 2020, outpacing the 5.6% growth in total existing-home sales.
Vacation home sales are up 57.2% year-over-year during January-April 2021 compared to the 20% year-over-year change in total existing-home sales.
Home prices rose more in vacation home counties – the median existing price rose by 14.2% in vacation home counties, compared to 10.1% in non-vacation home counties.
This coincides with data released by Zelman & Associates on the increase in sales of second homes throughout the country last year.
As the data above shows, there is still high demand for second getaway homes in 2021 even as the pandemic winds down. While we may see a rise in second-home sellers as life returns to normal, ongoing low supply and high demand will continue to provide those sellers with a good return on their investment.