Is The AirBnB Market Declining?

Over the past three years I have been watching the AirBnB and VRBO (Vacation Rental By Owner) phenomenon explode, at least on a local level. A lot of houses, cottages, and condos were bought with use as short term rentals (STRs) in mind. While not all STRs fall into this category as sometimes people will rent out their own home for a few weeks every year, the ones I am talking about are used for this purpose year round. That certainly applies here in the Lakes Region of New Hampshire where there are three tourist seasons – summer (boating, swimming, fishing, hiking, camping), fall (foliage), and winter (skiing, snowmobiling, ice fishing) – and AirBnB’s have been in demand, at least until recently.

Like many other towns and cities in other states, towns in this part of New Hampshire have been trying to deal with the impact of STRs on both the neighborhoods and the housing market. Our town started having issues with some of the STRs, specifically those which were consistently used as ‘party’ houses, which drove the town to develop some regulations. Ours aren’t draconian, aren’t onerous, and deal more with making sure the town knows who owns them as well as making sure they are safe. It took our town three years to come up with a set of acceptable regulations which were voted on and accepted at town meeting.

However, I have a feeling that some of those regulations will become moot. As I mentioned above, it seems the demand for STRs, specifically AirBnBs and VRBOs, have fallen off in my town. It’s even worse elsewhere like the Southwest and Mountain West where rentals have fallen by as much as 50%, and why some AirBnB owners are likely to sell their properties.

These Airbnb owners are getting ready to sell because of "Airbnb bust", a downturn in the short-term rental market that started in the second half of 2022, with Airbnb operators in some cities facing a 50% decline in revenue. These declining revenues are the result of a slowdown in post-pandemic travel demand to go along with a massive increase in Airbnb supply, trends which are now causing many Airbnb operators to lose money on their rental.

I believe these losses will cause a wave of distressed selling from Airbnb operators in 2023 and 2024, particularly in cities where:

1) revenue has crashed the most, and

2) Airbnb supply increased the most

If you're a homebuyer or real estate investor it's important to understand the exposure your city and neighborhood has to the Airbnb crash, particularly the timing and depth of the downturn. Because when it all shakes out, I believe that there will be some great buying opportunities for homebuyers and investors across the real estate spectrum.

The housing market around here was affected by investors buying up homes, paying above asking price and in many cases paying cash. Some investors got into bidding wars which drove the selling price through the roof. One such property I am familiar with – an 1800 square foot chalet - was listed for just over $300,000. It sold for $700,000. That is insane, particularly for that particular house. It is used as an STR and was renting for $2650 per week last year. There are others here in our town that are similar, including one that is just behind The Gulch. What surprising is that that particular one has only had two renters over the past six weeks – one during Motorcycle Week in mid-June and one which checked in just today. The place was empty during the week of Fourth of July as was the other AirBnB just down the road from The Gulch. That is unusual. Some other local AirBnB’s I have checked regularly were showing a few unbooked weeks between now and Labor Day. That’s entirely different from last year.

Does this indicate we’ll see the same level of booking fall-off as has been seen elsewhere? If so, when can we expect owners to drop their prices or sell their poorly performing investments? If they do sell, do they expect they’ll be able to sell them for whatever they overpaid to acquire them?

It will be interesting to see how all of this shakes out.