Secondary Housing Market-Our Most Sensitive Market

 I have clients now who are considering the idea of a second home as opposed to a primary residence. The current market and what would be first time home buyers is full of what I and my best friend term "hacking the system". Our personal concept for hacking the system is some iteration of reviewing what the standard system is and going about things a little differently in such a way that it works for us as individuals. I think a lot of people are trying to figure out exactly how to do that themselves. One option is potentially opting for a second home.

So how would buying a second home stack up in this environment? Just like the response to most complicated questions, there isn't a concise, one word answer other than, it depends. The secondary housing market arguably has more extreme swings than other aspects of the housing market. It's a luxury item that is based upon discretionary spending and demand based upon what I would call "funsies". It's not to say that people could make this purchase with the expectation of retiring in their second home or splitting their time between properties or even tax purposes. There is arguably a much smaller portion of the population trying to calculate how to maneuver those waters. On the other hand, when people want a second home, they want a second home. As a result, secondary housing markets can act as a bit of a precursor of what is to come. 

Right now, a lot of the economic data indicates a very odd dichotomy: people are cutting down on discretionary spending and the rich are still spending. We're also navigating a time post historically low interest rates. With that, ours and more extreme secondary housing markets have low inventory. However, this article has data on South Lake Tahoe showing that even though inventory is low, pricing year over year is only up 2.9% currently with the expectation that it will/could turn negative. Our local market showed what seemed to be unreal pricing for multi units with short term rental permits on the peninsula. That market has significantly cooled just even in the last 3 months. Needless to say, things are a little off. However, there is still a limited supply of these permits and a limited supply of coastal housing. As far as protecting an investment, I'm very pro keeping money local. 

Unless the fed comes forward saying that they will be significantly dropping rates in the future, I think it would be a surprise to recreate the same frenzy we had during the pandemic. Without the explosive pop, I think it's important to consider what is right for you, your investment and your family given what should be a pretty consistent level of stability. For more on how changes in the short term rental market could affect the overall market, check out the following link: Vacation Rental Bust