This week Escape Home contributor Joelle Anselmo caught up with Austin Allison, CEO and co-founder of the fractional home-ownership platform Pacaso to talk about rising mortgage rates, pandemic trends and investor buyers. The platform also recently released a new report on the luxury second-home market. Key findings include that luxury second home sales increased 235% since Q1 2020, and that the second-home destination with the greatest price increase in Q2 2022 was Coeur d’Alene, Idaho, where the median home price is $1,745,000, a 51.7% year-over-year increase.
Escape Home: Have rising interest rates impacted the luxury second-home market as a whole?
Allison: I think the first thing to clarify is that when we’re talking about luxury second home buyers, they tend to be families that are a bit more affluent, and therefore they’re less impacted by rates. The percentage of people who pay cash is very high — in Pacaso’s case we see more than 30% of people paying cash. In general, it’s a more affluent pool of people who are in a position to purchase a luxury second home.
A one-eighth share of this Pacaso mountainside property in Truckee, California, is $749,000. Photo: Pacaso
Escape Home: What about within the context of Pacaso?
Allison: When you co-own a home with someone else, you’re only paying for one-eight or one-quarter of the home. So as interest rates go up, it actually impacts home affordability, eight times more than it impacts a Pacaso home. As an example, I was talking to one of our new owners a couple of weeks ago. She lives on the East Coast and she and her family really love Vail as a ski destination, so she wanted to buy a home there. She had a $3.5 million budget. So she called her real estate agent and they toured whole homes and discovered that really all she could buy for $3.5 million was a two-bedroom condo. She discovered Pacaso through her real estate agent and ended up spending $1.7 million on a share of a large estate on the most prominent street in Vail. So she was able to spend half the money and get you know, six or seven times the home that she would have been able to get.
Interest rates going up really amplifies the benefit of co-ownership. We’ve been seeing a trend of more people migrating to co-ownership to save a lot of money and to save a lot of hassle and that’s a trend that I think will definitely continue into the future especially during this high interest rate environment.
Escape Home: It’s been nearly three years since the start of the pandemic. Looking back, how did that change things for the industry?
Allison: Covid really kind of reinforced the importance of seizing every moment and kind of living life to the fullest. What we see with our customers is they want to spend time with their family, they want to host their friends, they want to ski. And the other big point is that so many more people today have flexibility to work remotely. If you look back at the work-from-home trends over the course of the last five or six years, you’ll see that about 10 times more people today have the freedom to work remotely which means that they can actually use a second home.
Escape Home: These trends have also led to a lot more people — and investors — purchasing properties that they list as short-term rentals. Have you noticed this affecting the real estate market?
Allison: I guess anything’s possible but it’s hard for me to imagine that the investor buyers are really impacting the number in a meaningful way. I think the more meaningful trend — because short term rentals have been around for quite some time and we’ve definitely seen some increase in the number of people who are buying them to rent — but the much bigger increase is that percent of people who have the flexibility now to use a second home, or even to live in one of the second home destinations on a primary basis. I’m actually a great example of that. I live in Napa Valley. I would not have been able to live in Napa Valley five years ago when I was working for Zillow and in the office in San Francisco five days a week. So there’s a lot of people who are now in the position of having the ability to live in one of these locations and that’s the main thing that’s driving the change.