Vacation homes are not so hot anymore!
Rate locks for second homes are down 52% from pre-pandemic levels on a seasonally adjusted basis in March, compared with a 13% decline for primary homes.
Yup, the days of below 3% rates are over and the top 1% has already bought a record amount of second homes after surging 89% from pre-pandemic levels. The entire pandemic housing bubble was mostly for the rich and investors. Years of demand have been pulled in and now we are left with home prices well above 7x median income.
If we expect sales volume to increase, I would not hold my breath. Wages are still negative versus inflation, rates are still high (and will remain high in 2023), banks are less willing to lend, savings are falling, and work-from-home is starting to slow down.
Now many are going to say that supply is low. Well, is it really? If it was really low enough then the sales pace would quicken, and it’s not, and home prices would surge, and they are not and they certainly would not bough fall as inflation eats away equity.
From 2020 through 2020 we didn’t have a supply issue we had a cheap money avalanche that grew sales go from 5.34M homes in 2019 to 5.64M in 2020, 6.12 in 2021, and 5.95M in 2022. We sold more homes per year during the pandemic than before the pandemic. We didn’t see inventory build because they were selling too quickly to be counted or were sold off the market. Demand was greater than supply because everyone had free money coming in, access to cheap money, made money easily on stocks/crypto, and they didn’t spend any money.
As rent prices fall (first YoY rental price fall has finally come), the economy softens, and unemployment starts to creep we will slowly return to pre-pandemic inventory levels. But rates and demand will not be back.
The 2023 and 2024 housing markets are going to be more challenging than most believe.
