A new report from Redfin shows that demand for second homes and vacation homes is falling, and they call it an early sign of the housing market slowing down.

The company says that increases in mortgage rates and fees for second home loans are making it more difficult for buyers.

“The pandemic-driven surge in sales of vacation homes is coming to an end as mortgage rates rise at their fastest pace in history, causing some second-home buyers to back off,” Redfin Deputy Chief Economist Taylor Marr said.

“When rates and prices shoot up so much that a vacation home starts to look more like a burden than a good investment and a fun place to bring your family on the weekends, a lot of prospective buyers have second thoughts.”

The slowdown comes after a two year boom in U.S. vacation home purchases that saw an 87 percent increase above pre-pandemic levels in January 2022, according to Redfin.

The Federal Housing Finance Agency also recently announced that it would raise fees charged by Fannie Mae and Freddie Mac on second-home loans.

The fee increase could be an additional will increase between 1.125 percent and 3.875 percent, tiered by loan-to-value ratio. It could add up to $12,000 to a $300,000 mortgage, which is payable upfront or rolled into the loan.

The new pricing takes effect for loans that Fannie or Freddie purchased on or after April 1.

While demand for secondary homes decreased, Redfin said “demand for primary residences outpaced that of second homes for the second month in a row.”

However, they say it’s partly due to the decrease in those buying second homes, since “demand for primary residences” has been about the same since June 2020.

Additionally, the higher mortgage rates are making monthly costs for homebuyers go up sometimes as high as an extra $500 per month, according to Redfin. They say the increasing rates are “driving a sense of urgency to buy before” they go up again, causing potential buyers to back off as their budgets are “exceeded.”

As the housing market remains strained, Daryl Fairweather, Redfin’s Chief Economist, says it may not be all bad.

“Homebuyers may not feel like the market has gotten any easier. That’s because they’re often competing against investors, all-cash buyers and migrants from expensive cities who aren’t as sensitive to mortgage rates,” Fairweather said.

“But there are early indicators that the market is turning, and we expect the softening to become more apparent in the coming weeks, eventually causing home-price growth to slow.”

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