Second-Home Demand Falls 18% as Affordability Pressures Bite

Second-home mortgage applications fell 18% year-over-year in the first quarter of 2026 as affordability pressures, elevated insurance costs, and moderating appreciation expectations deterred discretionary buyers. Redfin analysis of Home Mortgage Disclosure Act data and Mortgage Bankers Association application surveys identified the decline.

The 18% reduction extends a multi-year retreat from the pandemic-era peak. Second-home mortgage rate-locks reached their peak in early 2021 at roughly 4.6% of all rate-locks, per Redfin. The Q1 2026 share stood at just 2.3%, the lowest in at least seven years and well below the 3.1% historical pre-pandemic average.

"The second-home demand story has reversed as sharply as it surged during 2020 and 2021," said Chen Zhao, head of economics research at Redfin. Zhao said the combination of mortgage rates near 7% on second homes, rising property insurance costs in traditional vacation markets, and narrowing price appreciation expectations had removed the principal drivers of pandemic-era second-home buying.

Second-home financing costs run substantially higher than primary-home rates. Fannie Mae and Freddie Mac second-home loan-level price adjustments (LLPAs) add approximately 100 to 150 basis points to the mortgage coupon for second-home purchases. At current pricing, a buyer might lock a 30-year fixed second-home mortgage at roughly 7.8%, compared with 6.78% on an owner-occupied primary-home mortgage.

Insurance costs have compounded the affordability pressure. Traditional second-home destinations including Florida Panhandle and Gulf Coast, the Carolinas coastline, Lake Tahoe, and the Colorado mountain resort corridor all face elevated insurance premiums tied to specific perils. Florida vacation-home premiums frequently exceed $5,000 annually, while mountain-resort wildfire exposure in Colorado has raised premiums 40 to 60% over two years.

Traditional second-home markets have experienced measurable price softness. Cape Cod median prices declined 4.2% year-over-year in Q1, per Cape Cod and Islands Association of Realtors. Lake Tahoe's North Shore median fell 3.8%, and the Vail Valley median slipped 2.7%, per respective local boards of realtors. Florida Panhandle second-home condo prices dropped approximately 6% year-over-year, with specific sub-regions exceeding 10% declines.

Tax treatment of second homes has also faced policy-level scrutiny. The state of Maine in 2025 enacted a second-home property tax surcharge of 0.5% on the assessed value, effective for 2026 taxation. Montana expanded its existing second-home registration requirements with an annual fee in January. State-level revenue initiatives targeting out-of-state second-home owners have generated consistent interest in tourism-dependent regions.

Short-term rental economics also shifted. Cities including Nashville, Asheville, New Orleans, and Scottsdale all tightened short-term rental rules during 2025. Many second-home purchases that had been partially subsidized by short-term rental income became less attractive as the pro-forma rental revenues dropped.

Some second-home markets have bucked the broader pattern. The Hamptons on eastern Long Island, the Palm Beach County luxury market, and select Colorado ski-adjacent towns continued to post modestly positive year-over-year price gains. These markets share exposure to high-income households whose discretionary buying is less sensitive to mortgage-rate and insurance-cost variation. Redfin projected the overall second-home retreat will likely stabilize in 2026 but remain well below pandemic-era peaks.