Why Is the Second Home Market Tight?

Thinking about buying a second home? You might be tempted by the low mortgage rates, especially if you’ve always wanted to invest in real estate. Unfortunately, the second home housing market in Monteagle, TN is part of a bubble—and some experts are speculating that it won’t be long before it pops.

Right now, second home mortgages are vastly outperforming primary home mortgages. In fact, the demand is almost quadruple that of the primary home demand—especially in seasonal locations. Why? With low mortgage rates and surging home prices, many homeowners decide that investing in a second home (especially if it’s in a popular vacation area) is worth becoming a landlord. They can rent out one of the homes to pay the mortgage on the second, or leave it vacant.

Home prices are surging

The demand for second homes has sent prices surging, which is making local residents in any given area unhappy. After all, if people are snatching up houses—often paying thousands over asking—as rentals or vacation homes, the housing market is stacked against first-time homebuyers and people looking to switch their primary residence.

Median prices for homes, particularly in seasonal towns, have steadily surged about 10 percent for the last eight or nine months. Seasonal towns report an average gain of 19 percent over the same time in February 2020. Homes currently average $417,000. In non-seasonal towns, prices rose 16 percent year-over-year for an average of $370,000.

Not only does this raise questions of affordability and availability, but it means that there are a lot of empty homes out there. As Wolf Street puts it, “No housing market can produce enough homes when homes are used massively as vacant investment speculations. This creates an artificial shortage.”

What happens when the bubble bursts?

Right now, the second home housing market in Monteagle, TN has surged 93 percent since February 2020. The government is subsidizing mortgages in an effort to get the economy rolling once again, but that will end come June. Fannie Mae and Freddie Mac are only subsidizing seven percent of mortgages that lenders grant. Soon, the second home mortgages may not be as profitable.

So, what happens when the owners decide to sell to lock in their profits—and what if they all want to sell at once? A rash of suddenly vacant homes will drive prices down, leaving some owners stuck with more debt than their homes are then worth. Plus, “The effect of the new restrictions is that mortgages for second homes and investment properties outside the cutoff will come with higher interest rates—which would play out particularly in housing markets where second homes are a big factor, which are also some of the markets that have the steepest price surges.”

As you can see, the second home housing market bubble in Monteagle, TN is complicated. Before you decide whether to purchase a second home, talk to the experts at Gooch-Beasley, Realtors. We can help you make the wisest decision possible for your finances and your needs.