By Josh Katzowitz, WCI Content Director
When entrepreneur and real estate YouTuber Nick Gerli tweeted in late June that Airbnb was collapsing, it touched a major nerve in the real estate investing community. Gerli, the CEO of Reventure Consulting (which, according to its website, “helps clients connect the dots between urban economics and real estate development”), used newly released data to make the case that people should beware of “a wave of forced selling from Airbnb owners [later in 2023].”
The hardest hit areas in the country, according to data from AllTheRooms: the Gatlinburg/Pigeon Forge area of eastern Tennessee, Austin, and Phoenix—all of which were popular for short-term rentals and all of which suffered at least a 46% decline in revenue year over year.
The Airbnb collapse is real.
Revenues are down nearly 50% in cities like Phoenix and Austin.
Watch out for a wave of forced selling from Airbnb owners later this year in the areas hit hardest by the revenue collapse. pic.twitter.com/xjGkj7bFC5
— Nick Gerli (@nickgerli1) June 27, 2023
Gerli went on to write that the data showed that compared to the 570,000 homes for sale in the US, there were 1 million Airbnb/VRBO rentals, which he said would create a “huge home price downside if struggling Airbnb owners elect to sell.”
That data sparked media to write that “times may be getting tough” for Airbnb owners, that it “could trigger a housing market crash ‘on par with the 2008 subprime crisis’ in some cities,” and that a “doom loop” might be developing.
Some are even rooting for its downfall in the name of buying homes at non-inflated prices and getting rid of Airbnb’s high fees and unrealistic rules for guests. As one Twitter user wrote:
“Give me that 1980s Holiday Inn with the jet engine A/C units that lulls me to sleep and goes down to 59 degrees. Shark Tank on the 26-inch TV. All I need.”
So, if you are invested in short-term rentals, should you be worried? According to Jamie Lane—the chief economist and the senior vice president of analytics for AirDNA, which is basically a data aggregator for Airbnb and VRBO—the answer is no, not yet. As he wrote on Twitter in response to Gerli:
“A viral tweet about STR data! Lets get some facts straight . . . There is not a collapse in RevPAL [change in revenue] happening. Is it down in 2023? YES. Is it down 40%? NO. I've pulled the numbers from @airdna’s dataset mirroring the analysis done by [Gerli]. What do we find? The average market listed is seeing RevPAL decrease of -3.6%, not -40.3%.”
How do you know which data is right? How do you know which data to trust?
Is the Short-Term Rental Market About to Collapse?
Short-term rental owners, using Airbnb and VRBO, did well during the pandemic. Since many travelers avoided hotels (and other people) as much as possible, it oftentimes made more sense (and felt far safer) to rent a house while on vacation. And if you had a house to rent, you could charge a premium price for your guests to stay.
But the pandemic is over, and though people are willing to travel these days, the rise of inflation and the questions that loom over this market environment (are we in a recession; are things actually getting better; is inflation going to keep rising?) might make people more wary of spending large sums of money for non-essential vacations.
If you own short-term rentals and believe the data shared by Gerli, you might be worried about your investments. But here’s something to remember: there’s not one single short-term rental market in the US. Saying the short-term rental market is in trouble doesn’t mean anything, because a nationwide short-term rental market doesn’t exist.
“Each city has its own market and submarkets with their own demand,” said Brett Stevens, The White Coat Investor’s chief operating officer. “Personally, we own seven short-term rentals in Salt Lake City that are near skiing and other mountain adventures. During the pandemic, we saw a significant increase in rentals from those who were new to remote work and had more travel flexibility. While some of that surge has disappeared, we have only seen an 11.6% decrease in revenue from 2022 to 2023. At least for the mountain niche of the Salt Lake City market, this data average does not apply. I do not see this as a problem. Markets go up and down, and short-term rentals are just another market.”
Investors who purchased short-term rentals in the last couple of years could be in trouble, Gerli said, especially if they bought at a high price (and therefore have high monthly mortgage payments and less margin for error). Those who bought before the pandemic and who have cheaper mortgage rates and more experience wouldn’t be as likely to sell, he said.
“The key to all investing is to not get caught with a tree vs. forest perspective. It is important to create a sound plan, execute it, and stick with it. Even if there was a significant decrease in revenue, my short-term rental investments would still be profitable. This is by design, and just because 2022 was an up year and 2023 is down, that does not mean I should make drastic changes. For new buyers, the current interest rate environment may make some previously promising properties now look poor. Again, it is necessary to have a plan in place, and if the property doesn’t fit within that plan, don’t buy it.”
Airbnb also took issue with the AllTheRooms data tweeted out by Gerli, telling MarketWatch that “more guests are traveling on Airbnb than ever before, with Nights and Experiences Booked growing 19% in Q1 2023 compared to a year ago.”
At this point, it doesn’t appear that Airbnb or VRBO are going to disappear any time soon.
More information here:
Will the Housing Market Be Damaged by Short-Term Rentals?
We already know the housing market as a whole has slowed because of rising interest rates and low inventory. While some believe the US could experience a housing “correction” instead of an outright collapse, Stevens said he’s not concerned about a crash related to short-term rentals.
“The housing market will go up and down and hopefully appreciate over time,” he said. “There will be a crash at some time in the future, but at least in the local market that I invest in, a decrease in short-term rental revenue is not an indicator of an impending housing collapse.”
Home prices, in fact, might be continuing to rise anyway. As noted by Forbes, this could be a FOMO issue where people believe that prices will keep increasing and that they should purchase a home now (when it’s theoretically cheaper) instead of waiting for a time when they could be priced out.
Even if the housing market takes a quick breather, experts don’t expect a crash reminiscent of the bursting bubble in 2008.
“We simply don’t have enough inventory,” Lawrence Yun, the chief economist of the National Association of Realtors, said, via Bankrate. “Will some markets see a price decline? Yes, [but] with the supply not being there, the repeat of a 30% price decline is highly, highly unlikely.”
Gerli’s tweet certainly worried some investors, and perhaps some short-term rental owners will look to sell their properties and exit the active real estate investing game altogether. Is that a good idea? It depends on whether you have a long-term plan that takes into account the volatility that real estate can provide.
“Short-term rentals are amazing, and the current news doesn’t change my perspective in any way,” Stevens said. “As we have been able to get city permission and convert my long-term rentals to short-term rentals, we have been able to almost double gross revenue in some cases. That comes with a lot of extra work, but it has been worth it financially. Remember, games are won with singles, not home runs.”
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Money Song of the Week
The first memory I have of MTV was watching music videos of Duran Duran’s “Rio” and “Hungry Like the Wolf.” I was a little kid at the time, but if I think back to, say, 1983, I vaguely remember watching a silk-suited Simon Le Bon singing while on a yacht about how much he enjoys cherry ice cream smiles (“Rio”), and I remember him crouching down in a canoe crooning about how the juice in his mouth was like wine (“Hungry Like the Wolf”).
(On a side note, it’s interesting that both videos feature him riding in boats while offhandedly mentioning his enjoyment of fruit-flavored delectables.)
ANYWAY, I saw Duran Duran live a few weeks ago, and somehow, the band that peaked in the early 1980s (with a comeback in the early 1990s) can still pack about 12,000 people into an arena to sing and dance to songs that are 40 years old (and man, Le Bon’s voice still seems effortlessly magical while four of the five original band members still perform grandly).
The band closed the show with “Rio,” and at first listen, the song seems to be solely about a woman who dances on the sand and who shows you all she can. But it’s also about excess and overindulgence—or as drummer Roger Taylor saw it, via Smooth Radio, “the truly foreign, the exotic, a cornucopia of earthly delights, a party that would never stop.”
The video for “Rio” certainly shows that.
Apparently, the video led to some criticism that the band was trying to sell a lifestyle, but Le Bon denied that in a 2008 interview with Q Magazine, via Song Facts.
“No! Rio wasn't a lifestyle, it was total fantasy,” he said. “You don't wear a silk Anthony Price suit on a boat with some painted [woman] running around. It was a comedy video. None of us had boats. It was a greedy reaction to the hard times that had gone before.”
Yes, the song is pure 1980s, but the music (and its message) still resonates in the 2020s. Duran Duran isn’t a nostalgia band from 40 years ago. It’s a band for all time.
Tweet of the Week
We’re going to be running a post about financial advisors later this week. Until then, keep this in mind.
"There's no #investing strategy so good that a high fee can't make it bad."
The same goes for any tax benefit.
There's no tax benefit so good that a high fee can't make it bad.
☝️ insurance & real estate
— Jon Luskin, CFP® (@JonLuskin) January 27, 2023
Are you worried about the short-term rental market? If you use Airbnb or VRBO for your properties, have you seen a decline in income? What are your plans for them? Comment below!
[Editor's Note: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at [email protected].]