The vacation-home market in the United States is facing a slowdown, with homeowners in several popular tourist destinations cutting asking prices as rising costs and weaker investment returns make properties harder to sell.
According to a report by Business Insider, vacation homes that attracted strong demand during the pandemic are now remaining on the market for months, and in some cases, years.
A two-bedroom cabin in Gatlinburg, Tennessee, illustrates the changing situation. The property was initially listed for $850,000 in January 2024, but its asking price has since fallen to just under $600,000, a reduction of nearly 30 per cent.
The owners had purchased the cabin in 2020 for $380,000. Although they could still make a profit if the property sells at its current asking price, the expected return is considerably lower than during the peak of the pandemic-era property boom.
During 2020 and 2021, low mortgage rates and strong demand for holiday accommodation encouraged investors to purchase second homes, particularly in mountain resorts, coastal towns and other popular tourist destinations.
The rapid growth of short-term rental platforms such as Airbnb and Vrbo also attracted buyers hoping to generate substantial income from holiday bookings.
However, the market has changed. Higher borrowing costs, increased competition among rental properties and slower growth in rental income have made investors more cautious.
According to the report, Big Bear Lake in California has experienced a decline of around 20 per cent in property values from its June 2022 peak. The number of homes available for sale in the surrounding county has also risen significantly.
Research firm Parcl Labs found that 37.3 per cent of vacation homes listed for sale experienced price cuts in June, compared with 35.1 per cent of other properties.
The report also identified Destin in Florida, the Florida Keys, the Smoky Mountains and Palm Springs as markets where a relatively high proportion of vacation-home owners had listed their properties for sale.
Apart from weakening investment returns, homeowners are dealing with rising insurance premiums, property taxes, mortgage payments and maintenance expenses.
Some owners who purchased properties during the pandemic are finding that they no longer use their holiday homes frequently enough to justify the costs.
Nevertheless, the short-term rental business has not collapsed. Occupancy levels in many markets remain relatively stable, while rental rates have recorded modest increases.
The biggest change is in investor expectations. Buyers are now paying closer attention to rental income, operating expenses and potential returns rather than assuming that property values and holiday bookings will continue to rise.
For sellers, this means accepting lower prices or keeping their properties on the market for longer. Those who purchased homes at the height of the boom face a particularly difficult decision, as selling now could mean substantial financial losses.
The situation marks a significant shift from the pandemic years, when vacation homes were among the most sought-after properties in the US real estate market.
