Second-home markets have been experiencing high demand since mid-2020, with luxury buyers motivated to seek out properties in holiday destinations with easy access to beaches, mountains, and other scenic spots where they can wait out the pandemic.
In fact, vacation-home sales were up 57.2% year-over-year for January-April 2021, compared with the 20% year-over-year change in total existing-home sales, according to data from the National Association of Realtors.
There have been similar increases in inquiries in Europe: Foreign buyers, undeterred by Covid-19, are buying properties on the French Riviera sight unseen, with brokers reporting multimillion-dollar sales to investors who haven’t set foot in the homes. In Greece, inquiries from American second-home buyers were up by 60% in spring 2021 year-over-year, Greece Sotheby’s International Realty found.
In Sydney, despite tight travel restrictions curtailing foreign investment, wealthy locals who already own primary homes in the area have been driving up prices by investing in secondary prime properties.
“There is a strong ‘fear of missing out’ mindset, and people are making offers and closing deals much quicker than in any previous time that I can remember in my career,” says Michael Pallier, managing director, Sydney Sotheby’s International Realty. “This is reflected in the most recent CoreLogic figures that show Sydney home prices are up 23.9% year-over-year through the end of September.”
The way buyers have been utilizing these new investments, too, has changed. With remote-work policies still in place at many companies, homeowners are staying longer in their vacation properties, using them more like primary homes, rather than visiting occasionally and renting them out the rest of the year.
“People are spending more and more time here. They’ve discovered it’s possible to work efficiently at a distance,” says Frederic Barth, chief executive officer, Côte d’Azur Sotheby’s International Realty. “They’re spending more time in areas like the French Riviera, where they can enjoy villas with a pool, a garden, and beautiful views, and avoid being stuck in apartments in big cities.”
In the U.S., demand for second homes showed signs of cooling during the spring of 2021, as some offices began reopening, and mortgage-lending rules for vacation properties were initially tightened. (Note: the Federal Housing Finance Agency has temporarily rolled back those restrictions, which should bring mortgage rates for second homes back down.) And even as the number of transactions declined in some markets, price appreciation remained strong due to low inventory.
“The demand in Hawaii in the second-home market has not died down. The sales numbers have slowed down, though, as a direct response to the record-setting low inventory,” says Ryan MacLaughlin, principal broker, Island Sotheby’s International Realty in Maui. “We haven’t seen this kind of inventory drought in 40 years. Yet the demand coming from West Coast buyers is still very much there. The price point on every transaction is continually going up, while the amount of trades per month are down.”
It remains an open question as to how new owners of second homes will use their investments going forward, once rates of Covid-19 transmission decrease, travel restrictions are loosened, and more workplaces reopen.
But for many high-net-worth investors, the pandemic has encouraged lifestyle changes that may become permanent.
“Of course it’s hard to predict what might shift, if and when work requirements change en masse, but many of the homeowners in Aspen are at a wealth level where they don’t need to report to an office if they choose not to,” says Andrew Ernemann, owner and broker associate, Aspen Snowmass Sotheby’s International Realty. “Conversely, there are many people that have found ways to work remotely just as efficiently or even better than before.”
Second-Home Sales in the Coming Months
In the U.S., price appreciation of second homes is expected to continue even after the number of transactions slowed over the summer due to limited inventory, according to agents.
South Florida’s second-home market, for instance, has seen dramatic price increases, especially at the high end.
“Prices have gone up dramatically in the past two to three years, and I see that increasing because of several factors,” says Todd Peter, senior global real estate advisor, Sotheby’s International Realty–Palm Beach Brokerage. “There’s limited supply, demand is extremely high, and people are wealthy right now, with the stock market seeing all-time highs. We also have record-low interest rates, so people are buying hard assets like homes, and for the foreseeable future I see it continuing.”
Brokers expect that demand for second homes will continue—and that those who have already purchased vacation properties since the onset of the pandemic will stay put.
“With the exception of any unforeseen macro event, the fundamentals in our market continue to point toward price appreciation, due to limited inventory with continued demand,” Ernemann says. “Many of the recent transplants have found the Aspen area to be a great place to spend more time than they would have in the past. The rental market is incredibly tight right now, and it does not appear that there has been a large shift toward recent purchasers renting out their homes—not yet, anyway.”
In some markets, recent holiday-home investors have begun to return to their primary homes, but they aren’t in a rush to sell. “We are starting to see some clients returning to their cities in the mainland, and heading back to their corporate offices, but we haven’t seen those clients wanting to sell,” MacLaughlin says. “The uncertainty with Covid, and the understanding that ‘working in paradise’ can actually work, has made those clients want to hold onto those properties in anticipation of being able to do it again. That, and the fact that they now have a property to retire to in a few years or down the road.”
There may eventually come a cooldown in demand, but we believe buyers who have already purchased holiday homes are likely to hold onto them for some time.
“As the effects of the pandemic are minimized, most likely people who haven’t left the big cities so far will stay. But I doubt that people who purchased second homes will sell them immediately just because life in the big city is returning to normal,” Barth says. “So far we haven’t seen a change in second-home buying trends.”