It seems to be a popular headline in the media right now. The second home market is slowing. Sales are not where they were last year. The headlines are designed to draw you in. If you are in the market for a second home, that headline will grab you. Reading the articles can make you wonder if now is a good time to buy a second home. Let’s talk about the Summit County second home market.
The second home market in Summit County
As we all know, the pandemic created some big changes all across various industries. Real estate saw huge demand and low supply which gave us historic price appreciation. 2020 and 2021 were unusual years. Comparing current sales to those years really means nothing. A more meaningful comparison would be looking back to 2019; pre-pandemic. March 2022 had 110 residential sales. March of 2019 had 86 residential sales. That’s a 22% increase. Is the second home market really slowing? If we look at the whole first quarter, there were 279 residential sales in 2022 while only 271 in the first quarter of 2019. The second home market may be slowing in comparison to the last two years, but it looks to just be going back to a more normal level of sales.
Changes that may impact the second home market
For years we have said interest rates can’t go lower, but they kept going lower. We said they can’t stay this low forever. But they stayed that low for a long time. We are finally right! Interest rates are on the rise. Already we have gone from a low water mark of around 3% for a 30 year mortgage to the 5% range. That’s a quick rise in a short period of time. Ultimately, 5% may be a great rate by this time next year. The Federal Reserve is planning to raise interest rates multiple times this year. While their interest rate hike doesn’t directly change mortgage rates, odds are, we will see mortgage rates continuing to rise as a result.
Another change is the additional fees being charged by Fannie Mae and Freddie Mac on second home and investment property loans. The new fees can add nearly 4% to the cost of a loan. Many lenders are coming up with their own products that can give buyers an alternative to paying these high up front fees. As second home buyers begin talking to lenders and discussing the costs associated with buying, these new fees should be addressed.
These changes may have an impact. We may see the Summit County real estate market slowing. Slowing compared to 2020 or 2021 is one thing. Slowing beyond what has been typical is another.
Properties for sale
Even before the pandemic, the number of homes for sale in Summit County was low. However, the increased sales pushed us into even lower inventory numbers. Just in the last few months, inventory dropped below 100 residential properties for sale in the entire county. When you consider the county had 110 home sales in March, having less than 100 homes for sale is extremely low. We are starting to see inventory bump up. It is, however, typical to see more properties come up for sale as ski season ends. Generally that inventory will continue to build all summer long. Hopefully this year will be normal in that regard.
Some slowing in the Summit County real estate market is necessary. It’s been a wild ride with incredibly high appreciation and demand and incredibly low supply. Tamping these down to more normal levels will actually be good for our second home market.