The residential real estate market in this country has been on a tear for quite a while now, and the pandemic just sped things up, perhaps nowhere more than in the market for second homes.
Redfin (NASDAQ: RDFN) says pandemic-driven buying by people who can work from home anywhere -- and it might as well be somewhere nice -- is driving that industry segment to new heights.
Redfin focused on two key metrics in its April 9 report: the number of buyers who locked in mortgage rates on second homes and the skyrocketing prices for homes in what it considers seasonal markets.
Mortgage-rate locks, which guarantee a specific rate for a specific amount of time, result in purchases about 80% of the time, Redfin says, and the borrower has to specify whether the loan is for a primary residence, second home, or investment property.
The national online broker says rate locks soared a record 128% in March 2021 from March 2020, just before the novel coronavirus was declared a global pandemic and a new, grim reality set in. That also marked the 10th straight month of mortgage locks up by 80% or more from the year-ago month.
Seasonal markets, meanwhile, are defined by Redfin in this report as areas where more than 30% of housing is used for seasonal or recreational purposes. They’ve seen even more dramatic price increases than the overall residential market, which has been regularly breaking records of its own.
Second-home demand rising nearly four times that of primary homes
"The annual rise in demand for second homes is nearly quadruple the 34% year-over-year gain for primary homes," Redfin said in the report.
Driven primarily by out-of-towners, home prices in seasonal towns responded with a rise of 19% year-over-year in February, the most recent month for which data was available, to $417,000, the online broker said. The report said that median price had posted gains of 10% or more now for eight straight months.
Meanwhile, the median sale price rose 16% to $370,000 in nonseasonal towns, Redfin said.
The Millionacres bottom line
Rate hikes looked more likely several weeks ago than they do now, so maybe that had something to do with it as prospective buyers locked in uber-low rates while they could.
But still, that 128% year-over-year surge in mortgage locks is pretty dramatic, especially if 80% really do result in purchases in these markets. According to Redfin:
While home prices are up significantly almost everywhere in the country, the fact that they’re up more in seasonal towns is an indication that out-of-towners and second-home buyers are impacting those markets, pushing prices up for locals.
For instance, we’re looking at you, Boise, Idaho, where Black Knight (NYSE: BK) just detected annual price growth of 25.7%. And at you, pandemic retreat Barnstable, Massachusetts, where the National Association of Realtors says its 4Q20 condo and co-op report found a 37.3% jump in prices in just a year.
Issues of affordability aside, rising demand in these areas cuts both ways for residential real estate investors. It makes it tougher to find good deals, for sure, but also, because of the interest of deep-pocketed outsiders, it raises the bar for what’s a good deal in the first place.
The right seller. The right price. The right buyer. That formula should still work even in these heated markets.