The Uncertain Future of Short Term Rentals in the US.

As the economy slows from raising interest rates and money becoming more expensive, consumers are starting to be more cautious with their spending. One of the main areas hit by consumer discretionary spending is hospitality. Coming out of the pandemic, short term rentals were so appealing because they offered unique experiences in cool places and the opportunity to have a place all to yourself. Airbnb/Vrbo hosts (and the companies themselves) made a killing during this time. As people saw hosts on social media boast about making $20-30k a month, they rushed to by an overpriced home in one of the popular short term rental spots in the country. This “gold rush” lead to a large number of short term rental home purchases, which has only worsened the overall housing availability situation.

What Goes Up Must Come Down.

Moving into the summer of 2023, some of the biggest Airbnb markets are starting to see 50% declines in revenues. Here is a list of the markets with the biggest declines.

Airbnb’s Compared to Current Homes Available for Sale.

The below graph shows the amount of Airbnb’s compared to homes for sale. As you can see, there are roughly 1 million Airbnb's compared to roughly 570k homes for sale across the United States.

Zooming in closer to a few different markets in particular:

Phoenix - Short term rentals (18K), Listed homes for sale (8k). Short term rentals are seeing -50% declines in revenue.

Sevierville, Smokey Mountains - 10x more short term rentals then homes listed for sale with revenues also declining by -50%.

Central and Southern Texas - Sizable declines in multiple different markets across the state.

Short Term into Long Term rentals.

As short term rental owners see declines in revenue, they may elect to turn their short term rentals into long term rentals. This way they have guaranteed income over the course of the year and don’t have to rely on 3-4 bookings a month. The issue here is that some of the popular short term rental markets are starting to see massive spikes in long term rentals hitting the market. Below is a graph of the long term rental vacancy rate in Nashville.

The surge of long term rentals in dense population centers will likely cause a crash of the long term rental market in those areas. One of the best examples of this is Scottsdale Arizona (2). The below heat map shows locations of short term rentals in the greater Pheonix area. As you can see, a surge of short term rentals hitting the market as long term rentals could collapses Scottsdale’s market.

Conclusion.

This is why buying right in real estate is so important. Short term rental owners who bought expensive homes with big mortgages are going to struggle to keep these homes operational (especially in big markets). Investors who bought smart and at a good time should be able to weather this storm.

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