Mortgages for second residences and housing markets

Mortgage credit plays an important role in purchases of second residences, such as vacation homes or second homes. This article documents unique features of second residence mortgages, and explores whether and how policies for such mortgages could affect not only second residence homebuyers, but also potentially primary residence buyers through the availability of housing in local markets. We show that second residence loans are geographically concentrated in particular counties—much more so than mortgages for investment properties—meaning that policies affecting second residence mortgages could have large effects on local housing markets. We study these dynamics through a 2022 policy change that sharply increased borrowing costs for second residence mortgages, by $1397 per year for the average affected mortgage. This large cost increase occurred in a period of changing market conditions, following the pandemic‐era housing boom and coinciding with a sharp rise in mortgage rates, motivating our use of synthetic difference‐in‐differences methods to quantify lending outcomes. In this context, we estimate that lending for second residence mortgages fell by 26%. At the local market level, we estimate that, overall, mortgage lending for home purchases decreased by approximately 5% in counties with many second residence loans, suggesting that the reduction in lending for second residences was largely not offset by increased borrowing by primary residents or investors. Consistent with this interpretation, we find no evidence of increased lending for primary residences in these counties, potentially due to unique market dynamics or property features in these vacation home counties where second residences are common.