Second Home, Second Thoughts

During the pandemic, owning a second home suddenly felt within reach for many people. Mortgage rates dropped to historic lows—some as low as 2.75%—and buyers rushed into vacation markets like Palm Springs, Lake Tahoe, and coastal towns across the country. Remote work made it easier to split time between cities, and the idea of having a personal getaway property became incredibly appealing. With borrowing costs so low, many buyers felt comfortable stretching a little further than they normally would.

A common approach at the time was using short-term adjustable-rate mortgages, particularly 5-year ARMs. The initial rates were extremely attractive, and many borrowers assumed they would simply refinance before the loan adjusted. Others planned to offset the mortgage by renting the property through Airbnb or other short-term rental platforms, which were booming during that period. On paper, the strategy seemed to make perfect sense.

Now, five years later, many of those assumptions are being tested.

Those early pandemic-era loans are beginning to hit their adjustment periods, and the difference between a 2–3% rate and today’s interest rate environment is significant. In many cases, mortgages that were once incredibly affordable are resetting into the 6–7% range or higher, causing monthly payments to increase dramatically—sometimes nearly doubling. For owners who bought a second property based on the economics of a sub-3% mortgage, the new payment can completely change the financial picture.

At the same time, the backup plan for many homeowners—short-term rental income—has become less reliable. Cities that experienced a surge in vacation rentals have begun tightening regulations, and Palm Springs is a clear example. New ordinances have limited the number of short-term rental permits and increased enforcement, making it harder for some owners to generate the income they originally expected.

The next logical thought is often: “I’ll just rent it long term.” But that solution frequently creates another problem. In many markets, long-term rental income doesn’t come close to covering the new mortgage payment, especially after accounting for taxes, maintenance, and management costs.

Then there’s insurance, which has quietly become another major expense. In places like California, premiums have risen sharply and some carriers have pulled back from certain markets entirely. For many second-home owners, the cost of insuring the property today is far higher than when they first purchased it.

Looking back, a lot of homeowners are now saying the same thing: “I should have locked that 2.75% rate into a 30-year fixed.”

This doesn’t mean second homes are bad investments. Many of these properties still appreciated significantly over the past five years. But the current situation highlights an important lesson: the financing structure matters just as much as the property itself.

Right now, in some vacation markets, we’re seeing something unusual. Some owners aren’t selling because they want to move—they’re selling because the numbers simply stopped working.