At the height of the pandemic, one of my friends—a self-proclaimed elder millennial who asked to remain unnamed—packed up their family of four in Brooklyn and sought refuge upstate. Buying property was no small investment, but at a time when cities were largely shut down, the rural prices felt like an opportune move.
A quick browse around StreetEasy shows that you’d be hard-pressed to buy a place for less than one million dollars in Park Slope, the Brooklyn neighborhood where my friend lives full-time. Various listings upstate, however, could be twice the size for less than a third of the Brooklyn prices.
My market analysis is less-than thorough, but again: The fact that real estate is cheaper outside of large cities is nothing new. More to the point, the trend in buying “vacation homes” before a regular “starter home” comes down to the potential for a return on investment. Over the past few years, numerous headlines and blogs reported on the advantages of purchasing a “second” home before your first. But will this vacation-home-buying trend continue as the pandemic (hopefully) subsides? Here’s what you need to know.
With exorbitant housing costs in major cities, many homebuyers opted to continue renting their primary residence while actually owning property in less competitive markets. Although experts were noticing this trend before March 2020, like with many things, the pandemic accelerated it.
According to Money.com, the average millennial buyer who hopped on this trend in 2021 were able to spend $285,000 on their vacation home purchase—well below the nation’s median home price of $386,000. On top of the historic dip in costs, that vacation home was full of all other kinds of promise. Vacation homebuyers could earn extra income by renting out their property, build wealth for themselves, and have a place to escape in case of COVID spikes around their primary residence.
The chance to build equity in a market that seemed less attainable to them than to any previous generation—coupled with the ability for many to work remotely—made the decision to spring for a “second” home a potentially once-in-a-lifetime buying opportunity. But will that trend hold true as the pandemic subsides?
During the pandemic, the vacation home purchase seemed like a win-win-win for millennials: low costs, pandemic escapes, and the first chance in their lives to become homeowners. Unfortunately, the pandemic-induced housing market is no longer as lucrative as it once was. And according to CNBC, we can expect to keep seeing the high prices of a seller’s market in 2022.
What’s more, NPR this week paints a different side of the vacation homeowner story: buyer’s remorse. The piece points out that many first-time buyers were caught off-guard by all the unexpected costs associated with owning a home.
In addition to upfront costs (like your down payment) and monthly mortgage payments (which you can figure out with an online calculator like this one), here are some other expenses to consider.
- Property taxes. These can vary wildly depending on your location. You might pay $5,000 in property taxes on a $250,000 home in New Jersey, or the same amount in taxes on a $750,000 home in Alabama.
- Homeowners insurance. Market Watch reports that the average cost of homeowners insurance in 2020 was $1,249 per year, or $104.08 per month.
- Utilities and maintenance. If you’ve only ever been a renter before, maintenance costs were usually handled by your landlord. American Family Insurance suggests using the square foot rule to estimate often unpredictable maintenance costs. Budget about $1 for every square foot of livable space. So, a 2,500-square-foot home would require a $2,500 budget annually, or about $209 per month.
For more information, here’s our more detailed list of hidden costs for homeowners.
Taking on a mortgage in a major city is a major hurdle for millennials—one that renders owning a traditional starter home out of the realm of possibility. Vacation homes in more affordable areas will be more manageable month to month, with the potential for a lucrative return on your investment. Unfortunately, the housing market of the height of the pandemic no longer presents the same perfect storm for millennial buyers as it once did. A “second” home could still be the right move for your first purchase, but the unique buyers’ opportunity created by the pandemic seems to have passed.