Is the Second-Home Market Really Over?

May 9, 2022

(YT Video: The Second Home Market Is Crashing | Redfin, Freddie Mac, Forbes.)

Is the Second-Home Market Really Over?

With the murmurs of a recession hovering around, many have been saying that the second-home market is crashing.

I take a look at what reputable sources like Redfin, Freddie Mac, and Forbes are saying about the issue and try to analyze how the data reflects the current market situation.

What Redfin and Freddie Mac Say About the Topic

Redfin released an article saying that the second-home market boom ushered in by the pandemic is now coming to an end. While data shows that the demand for vacation homes is still up 13%, there has been an obvious decline for two consecutive months recently. Redfin’s Chief Economist mentions the decline in the demand for vacation homes signals the surge in sales is coming to an end due to the rise in mortgage rates.

Freddie Mac has a graph that shows this is natural market behavior. Over the years, whenever there is a significant increase in home prices, there is an evident decrease in home sales.

But it is too early to be disheartened just yet.

Forbes’ Take on the Issue

I love facts. We see a lot of clickbait online that capitalizes on emotion but aren’t backed up by proof. These types of articles or videos cause a lot of confusion for the audience. Forbes’s article settles the confusion surrounding the second-home market crash rumors.

Forbes addresses the question “Are we headed to a housing bubble?” and gives several reasons why the answer is a definite “no”.

More Younger People Are Buying Houses Now

Millennial demand for housing is still high, and the Gen Zs are following suit.

Forbes presents data from the NAR (National Association of Realtors) showing what percentage of home buyers belong to specific generational groups. In 2021, 37% of home sales are purchased by Millennials.

I was also surprised that 2% of home buyers last year were young adults, aged 21 and below. How amazing is that!

The Current Housing Supply Can’t Keep Up with the Demand

Part of the reason why home prices are so high is because of a supply-demand imbalance. Despite the increase in mortgage rates, there are still too many people looking to buy property. Even with 1.8 million home starts, it is unlikely to put a dent in home prices.

Borrowers Nowadays Are More Responsible

Of the $1 trillion in new mortgages during Q4 of 2021, 67% goes to borrowers with credit scores of 760 and up. These borrowers are less likely to default on their loans as people with good credit scores are more likely responsible for paying their bills on time. Often, these homeowners have a property with massive equity.

Events that Dampen the Housing Market

People are speculating about a recession due to interest rates and the inflation rate going up. Plus, the war between Russia and Ukraine also has an impact on the economy. With prices of everyday goods increasing with everything else, home buyers are pulling back on expenses.

The Good News Is…

So, yes, home prices and interest rates will continue to go up, but it won’t be by a lot. According to surveys, there is a 9% increase in home prices nationally through the end of this year. But, thanks to responsible borrowers, this increase is slowed down and is gradually stabilizing. Next year, it is projected at around a 4% increase, and the year after that is at 3-4%.

With the amount that the value of a property is going up, it is keeping ahead of inflation. Between putting your dollars in your bank account or in real estate, the latter is going to grow more.

Right now, the increase in home prices and interest rates might keep some people out of the market, and it definitely affects the second-home market. The good news is, that if it can affect the second-home market, it is a good indicator that buyers can afford homes in those markets.