U.S. home buyers took out 40% fewer mortgages in 2023 than a year earlier – a figure that appears to prove real estate mogul Grant Cardone’s warning to avoid short-term rental properties is correct.
Cardone urged his followers
Second-home mortgages have fallen 65% since the peak of the pandemic housing boom in 2021, according to a Redfin analysis of Home Mortgage Disclosure Act data.
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In comparison, primary residence mortgages fell by half, down 20% year-over-year in 2023 and down 35% from 2021.
Mortgages for second homes declined more than for first homes for several reasons
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Second homes tend to be more expensive – a typical vacation home was worth $475,000 in 2021, compared to $375,000 for first homes. Additionally, the federal government increased loan fees for second homes in 2022, making purchasing a second home more expensive.
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Vacation homes are not as important as primary homes, so many prospective buyers back out when prices rise.
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Renting a second home is less attractive as the market has weakened since the peak of the pandemic and properties are generating less income.
“Rising prices depressed demand for holiday homes last year, both among cash buyers and those taking out mortgages – but the latter fell even more sharply as high interest rates exacerbated high prices,” said Heather Mahmood-Corley, Premier Phoenix Redfin agent. “This year there has been a slight increase in interest in second homes, mainly from cash buyers who plan to move in full-time at some point. People who would need a mortgage are still sitting on the sidelines waiting for interest rates to come down – especially because even on second homes, interest rates are typically higher than on first homes.”
With many companies requiring their employees to return to the office, there is less time to spend in a vacation home.
Barry Sternlicht, CEO of Starwood Capital Group, recently said that as the job market slows, more employees are voluntarily returning to the office because “there’s nothing better than being together.”
According to the Redfin report, demand for vacation homes has not picked up again this year. Mortgage interest rates for second homes have been near their eight-year low since the beginning of 2024. They are down 7.3% compared to April a year ago. Collective bargaining agreements for first homes fell by 1.6%.
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This article Grant Cardone’s Prediction Rings True: US Mortgage Decline Intensifies Short-Term Rental Warning originally appeared on Benzinga.com
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