Just as homeownership is an essential element of the American Dream, owning a second home is a big part of the American fantasy.

Everyone wants to kick up their feet in their own little permanent retreat. Owning a second home is another step on the ladder of success.

Motivated by remote work, record-low mortgage rates and a desire to avoid crowds, many current homeowners jumped into the second-home fray during the pandemic.

Besides being a place where family can gather over the holidays or on vacations for years to come, second homes can be more-relaxed bases for remote work, or a future retirement location. A second home is also a possible investment, either as an income-generating rental, or a way to diversify assets, because property values generally aren’t tied to the stock market.

Prices began growing faster in 2020 as many affluent Americans sought to leave busy metros. Mortgage-rate locks for second homes spiked in June 2020 and reached a peak of 88% above pre-pandemic levels in March 2021.

But as mortgage rates have risen in 2022, demand has fallen off. Like much of the rest of the housing market, there is a severe shortage of inventory, down a record 29%. In May, the demand for second homes slipped below the pre-pandemic baseline for the first time in two years.

Beyond short supply, high prices and mortgage rates, second-home buyers are deterred by a new federal assessment.

Beginning in April, the Federal Housing Finance Agency (FHFA) increased fees for second-home loans, adding 1 to 4% of the property’s list price to the total. That equates to about an additional $13,500 on a $400,000 home. Fees can be paid upfront or rolled into the mortgage (about $60 per month).

Demand remains highest in vacation destinations within a three-hour drive of major metro areas. Prices in seasonal towns are still on the rise. In April, homes in vacation markets sold for a record $516,423, up 19.9% year-over-year. In non-second-home markets, prices increased 14.8% to a record $389,156.

The average rent in popular second-home markets rose 17%, compared to a 10% average elsewhere.

These still-rising prices suggest more remote workers are permanently relocating to resort towns, looking buy a vacation home as a primary residence. Some urban dwellers are even buying vacation homes with plans to buy a permanent urban home later, because they cannot currently afford the price tag on houses in their chosen neighborhoods.

In some areas, the spike in second-home buying has reshaped the overall market. During the two-year pandemic period, Phoenix sold more second homes than anywhere else in the nation. Over that time, home prices rose 25.3%, reaching a record of $495,000 in April. Rental prices grew 32.8%.

Second home prices and rentals in several traditional resort towns in Florida, as well as Las Vegas, NV, also saw significant price growth. In a bright spot for locals, those who already owned homes in these hot spots saw their own equity increase substantially.

According to a recent study, some of the most affordable vacation home towns are surprisingly familiar, offering premium outdoor fun and relaxation not too far from larger cities.

The #1 most affordable destination is Branson, MO, a country music mecca around beautiful Lake Taneycomo. The median price of a vacation home in March was just $299,000.

Other well-known destinations among the Top 10 included Myrtle Beach, SC ($341,000) and Lake Havasu City, AZ ($383,500).