Vacation homes were once real estate's hottest play. Now they're a nightmare.

Once a hot commodity in the real estate market, vacation homes have now become a source of frustration for many owners. Gary Doss, a seasoned real estate agent in Big Bear Lake, California, urges sellers to have an honest conversation about the challenges they face. Ethan Noah Roy, a reporter for Business Insider, visited the property at 317 Matterhorn Drive, a rustic two-bedroom cabin in Gatlinburg, Tennessee.

Despite its prime location near the Smoky Mountains, the home has been on the market for two years, with the owners currently asking for just under $600,000, a nearly 30% decrease from its initial asking price of $850,000 in January 2024.

The vacation home market was once ablaze with activity, with buyers snapping up properties at record levels. In 2021, cheap loans and a surge in vacation rentals fueled a buying frenzy, transforming markets like Gatlinburg and Big Bear Lake into prime examples of the housing market's frenzy. However, this boom did not last long. The short-term rental business has now plateaued, forcing investors to adopt a more disciplined approach due to the lack of record-low borrowing rates and fully booked calendars.

Other second-home owners are beginning to realize that their second homes may not be worth the costs and headaches associated with maintaining them. Many owners are opting to use these properties only a few times a year, leading to higher maintenance costs and monthly mortgage payments. Furthermore, home values in these resort towns have skyrocketed in recent years, with Gatlinburg's home values more than doubling in a two-year span and Big Bear Lake's values increasing by 77%.

As a result, second-home owners who bought at the peak of the market are now facing steep losses, even if they manage to turn a healthy profit on their initial investment.