Should You Buy a Second Home in 2022?

The quick answer? It depends what you're buying it for.

Buying a second home may be a goal of yours. But last year, it was a difficult thing to do. That's because home prices were up on a national level. And right now, we're starting off 2022 in a similar boat.

The S&P CoreLogic Case-Shiller national home price index recently found that home prices rose 19.1% in October on an annual basis. That's the last month the index has data for, but chances are, November and December's numbers are comparable. And that means home buyers across the board may be in for a challenge in 2022.

That said, buying a second home may be a good idea this year -- but only under certain circumstances.

The wrong time to buy a vacation home, but the right time to buy a rental

There are different reasons why people buy second homes. If your goal is to purchase a second home to use as a vacation spot for yourself and your family, then this may not be the year to do so.

Chances are, if you buy a second home this year, you'll pay a premium and wind up having to take out a larger mortgage than usual. That could make your second home harder to keep up with through the years. Since owning a vacation home isn't an emergency -- it's not the same thing as needing to buy a primary home -- it could work to your benefit to wait.

On the other hand, if your goal in buying a second home is to rent it out, now's a good time to pounce. While you'll pay more for that home than you normally would, rent prices are also up on a national level. If you'll be getting a tenant to help pay your mortgage, it could offset your higher costs.

It's also worth noting that we're starting off the new year with mortgage rates sitting at competitive levels. But there's a chance they'll start to climb as 2022 progresses. Of course, even if that happens, rates will likely remain attractive on a historical basis. Today's rates are still low enough to help offset the higher cost of buying a home, and the more rates climb, the less affordable a second home becomes.

What's the right call?

Even if you can afford to pay for a second home right now, housing inventory is very limited. If you have a specific picture in mind of what your second home should look like, you may need to throw it out the window. That alone is a good reason to avoid buying a second home this year -- or at least during the first part of 2022, when inventory hasn't picked up yet.

On the other hand, if you're buying a second home strictly as an investment property, you have a prime opportunity to command a nice amount of rent. And that's a move worth considering if you can afford the down payment on a second home given today's prices.