Pacaso Second Home Market Analysis Q3 2022: Key takeaways
- Luxury second home mortgage rate locks declined 28% from Q2 to Q3 in 2022, however they remain 152% above their pre-pandemic level in Q3 2019.
- While many pandemic boomtowns began to see price declines in Q3, those still have not extended to luxury second homes in destination communities.
- The data suggest buyers are adjusting their second home purchases to account for deteriorating market conditions by opting for less expensive destinations closer to home.
- The unprecedented ten-fold increase towards remote work since the pandemic is an historic development that will continue to fuel second home demand for many years to come.
The pandemic’s effect on luxury second homesLuxury second home rate locks were 152% higher in Q3 2022 than they were in Q3 2019, the last reading for the same season before the pandemic. In fact, every quarter from Q3 2020 to Q3 2022 saw rate locks on luxury second homes clock in at more than double the level in the corresponding quarter of 2019.In 2018, according to the U.S. Census, just 8 million people in the U.S. worked from home, or 5.3% of workers. Today, a recent McKinsey survey found that “58% of employed respondents…equivalent to 92 million [workers]…report having the option to work from home for all or part of the week.” Granted, that’s not a perfect apples-to-apples comparison, but it amounts to a whopping ten-fold increase. And now that about half of the workforce has shed a key obstacle to getting away—probably permanently--second homes remain superbly poised to benefit from that newfound geographic freedom. “Market conditions are temporary, but remote work and the desire to spend time with your people in amazing places are here to stay. That’s why I remain bullish on second homes in the long-run, especially in the luxury tier and despite the short-term challenges,” continued Allison.
Impact of market conditionsMortgage rate hikes, a weak stock market and general economic concerns, particularly regarding the housing market, combined to deter many buyers from purchasing a luxury second home in Q3. The relationship between mortgage rate hikes and second home rate locks is stark.Another important factor is the stock market. According to the National Association of Realtors, about half of second home buyers pay all-cash, and their role in the market isn’t captured by rate lock data. Luxury second home buyers tend to be affluent and hold much of their wealth in equities. Analysts suggest that stock market declines this year have erased $9 trillion in U.S. household wealth, and as losses mount it becomes harder to fund or at least justify a major discretionary purchase.Despite all that, rate locks were historically high—double their pre-pandemic level—so what is the story here? It turns out that rate locks varied throughout the country. Reviewing regional data, we observe a steeper decline in rate locks in premium destination communities, and an increase in more affordable locales.
Premier destination communities trending down
|Premier Destination Community||YoY Rate Mortgage Lock Change|
|Park City, Utah||-44.9%|
|Truckee-Grass Valley, California||-47.8%|
|Santa Barbara County, California||-56.7%|
|Honolulu County, Hawaii||-66.7%|
This is consistent with a trend we identified in our Q2 analysis, where buyers began to flock to locally-relevant destinations which can be more affordable and convenient. Taken together, these findings suggest that buyers are adjusting their second home purchases to account for market conditions by opting for less expensive destinations closer to home.
Regional destination communities trending up
|Regional Destination Community||YoY Rate Mortgage Lock Change|
|Washington County, Utah||+450.0%|
|Belknap County, New Hampshire||+183.3%|
|Currituck County, North Carolina||+160.0%|
|Osceola County, Florida||+116.7%|
|St. Johns County, Florida||+100.0%|