Why so many people have stopped buying vacation rental homes in San Diego

Interest rates and home prices are so high in San Diego that even vacation rental buyers have fled.

Mortgages for second homes in San Diego metro, typically a good indicator of vacation rental purchases, were down 45 percent in 2023, said a new study from real estate website Redfin and data analytics firm Optimal Blue.

Vacation rental purchases, for platforms like Airbnb and Vrbo, were down nationally by 40 percent, said the study. Of the nation’s 50 biggest metros, America’s Finest City had the 26th biggest drop — middle of the pack compared to other big slumps. Austin, Texas, which had the largest decline, saw second home mortgages fall 62.5 percent.

Pedro Tavares, who heads the Short Term Rental Alliance of San Diego, said the downturn tracks with what he has seen recently: Potential buyers shying away because of higher interest rates for ever-increasing home prices and concerns over declining rents.

Tavares owns five vacation rentals and manages three others. He said rents are down roughly 20 percent in a year, and people aren’t booking far in advance like they used to.

“The market has softened quite a bit,” Tavares said. “With the economy being what it is and economic forces, people aren’t vacationing as much.”

The Redfin study isn’t a perfect indicator of vacation rental purchases. Some well-heeled owners might be buying homes with cash or there are some reasons why someone might get a second mortgage besides an Airbnb piggy bank. However, a second mortgage is the most typical way a vacation home is purchased and a fairly good indicator.

There were 411 second-home mortgages in San Diego metro in 2023, down from 753 the previous year. Second-home purchases have greatly decreased since interest rates started rising. There were 1,303 second-home mortgages in 2018, 1,143 in 2019, 1,241 in 2020 and 1,441 in 2021.

Second-home purchases made up 2.1 percent of all mortgages in San Diego County in 2023 — down from 4 percent in 2018.

“Vacation homes aren’t a necessity the way primary homes are,” wrote Dana Anderson, an analyst at Redfin, “so when housing costs skyrocket, many prospective second-home buyers back off.”

Redfin noted other reasons besides mortgage rates that could slow interest in vacation rentals: The federal government increased loan fees for second homes in 2022, and rents, in general, are down across the nation.

Rental analytics company AllTheRooms said in April in San Diego County there 6,153 vacation rentals available (89 percent entire home, 11 percent private room) with an average daily rate of $389 at the end of April, down from $412 at the start of the month. It said the occupancy rate was 75 percent.

Tavares said the stricter city of San Diego permits were another factor that could have also dissuaded buyers. The city passed regulations in 2022 for vacation rental operators to buy a license and capped the number of short-term rentals. There have also been other crackdowns across North America, most recently in New Orleans and British Columbia, as rising home prices put pressure on governments.

Chris Anderson, a San Diego County real estate agent, said higher interest rates, federal lending changes and stricter requirements — like requiring a renter to stay at least seven days in some communities — worked together to soften the market.

“Those things combined put the kibosh on it,” she said.

There’s at least some evidence new rules are having the opposite effect, perhaps leading to a change in the future. Anderson said many accessory dwelling units that used to be used for vacation rentals were switched to 12-month leases following longer stay requirements. The problem is that many vacation renters would take Ubers to the ADU, she said, but now full-time renters have their car parked on the street all year — making traffic much worse than when it was a bunch of Airbnbs.