The myth of Airbnbust!

You may have come across social media posts that proclaim, "Airbnbust is finally here" or claim that short-term rentals are wreaking havoc on the housing market. This narrative can be quite alarming, but the question remains: Is it accurate? We're here to provide clarity on the state of short-term rentals (STR) and explain why concerns about Airbnb's impact on the U.S. real estate market may be misplaced. Our analysis draws from data sourced from AirDNA, Zillow, Redfin, and the Federal Reserve Board.

So, what exactly is Airbnbust, and should homeowners be worried about it? The Airbnbust narrative suggests that an excess of Airbnb hosts entering the rental market is leading to reduced opportunities for existing hosts and diminished earnings potential. This decrease in income is believed to result in missed mortgage payments, leading to a cascade of property sales and a decline in home prices across the United States.

Critics, often referred to as "housing doomers," argue that this nightmarish scenario is unfolding before our eyes. They point to a drop in rental bookings and a surge in vacant listings, an occurrence not seen in years. However, several factors in both the housing and STR markets work against the Airbnbust theory. Home values remain high, the number of active listings has decreased, and mortgage delinquency rates are low. In the STR market, the concept of churn, or the percentage of listings leaving Airbnb, has been on a downward trajectory since 2018, meaning that fewer properties are exiting the platform. Additionally, revenue per available rental (RevPAR) has leveled off after peaking in 2022 and remains significantly above pre-pandemic levels. In this analysis, we will delve into these trends and present evidence countering the negative scenario described above.

Home Values Have Returned to Historic Highs:

Data from the U.S. Zillow Home Values Index, spanning from January 2000 to May 2023, reveals that home values exhibited steady growth from 2012 until the onset of the COVID-19 pandemic in 2020. Subsequently, home values accelerated, reaching $348,000 by July 2022. Although there was a brief dip, with values declining to $342,000 by March 2023, steady demand and a limited supply of active listings have led to a recovery, with values reaching $350,000 by August 2023.

On the supply side, the presence of high mortgage rates means that homeowners are primarily selling their properties when faced with unexpected life events, such as divorce, family emergencies, or return-to-office policies. Many homeowners who secured record-low interest rates in 2020 and 2021 are hesitant to re-enter the housing market. The decline in active home listings for sale suggests that homeowners, including those involved in short-term rentals, are not abandoning their properties or significantly contributing to a rapid increase in housing supply.

The U.S. has struggled to keep pace with rising demand due to population growth, while the construction of new homes has been hampered by pandemic-related labor shortages, escalating building material costs, and supply chain constraints. Existing homeowners have limited incentives to sell their properties in the current market. Despite the need for additional housing inventory, new listings in September were down 7.5% from September 2022 and 21.9% from September 2021. In the future, forced sellers will be the primary source of new listings.

Affordability Challenges and Mortgage Delinquency:

Elevated mortgage costs, coupled with higher home values and low inventory, have made homeownership increasingly unaffordable. Between July 2021 and July 2023, average monthly mortgage payments surged from $1,002 per month to $1,875 per month, reaching a 20-year high. While this creates obstacles for potential homebuyers, it also suggests that there are critical factors beyond the STR market that influence housing affordability.

Despite the elevated mortgage costs, mortgage delinquency rates—indicating failure to make mortgage payments—remain low. Delinquency rates fell from 1.96% in the second quarter of 2022 to 1.72% in Q2 2023, representing a -12.2% year-over-year decline. These rates have also dropped since Q2 2018 and Q2 2019 when they stood at 3.2% and 2.6%, respectively. These trends suggest that the overall health of the U.S. mortgage market remains robust, with housing debt service payments as a percentage of disposable personal income at an all-time low. Most homeowners, including STR hosts, are consistently making their monthly mortgage payments and have not been compelled to relinquish their rental properties, as suggested by housing doomers.

Improvement in Churn Since the Pandemic Peak:

Housing market data partially explains why the STR market is unlikely to trigger a housing market crash, but a closer look at churn, which denotes the percentage of listings leaving Airbnb, provides additional context. During the height of the COVID-19 pandemic in 2020, churn surpassed new Airbnb listings due to travel restrictions, prompting many listings to transition to long-term rentals or become primary residences. The number of new listings decreased by more than 50% over two months, while churn increased. However, by the end of 2020, new listings rebounded, and churn began to decline.

Starting in early 2022, a significant increase in new listings coincided with relatively low churn. This allowed for a net increase in listings, indicating more new listings being added than old ones leaving the platform. In 2023, net listing change returned to more typical levels and remained positive, as more listings became available compared to those departing.

Over time, churn has displayed a consistent downward trend, with the share of properties leaving Airbnb steadily decreasing. Churn reached its peak at 4.8% during the pandemic, and, despite a minor increase in early 2023, it now stands at 2.8% as of September 2023, matching the September rates from 2022 and 2021. In general, the percentage of properties exiting the STR market each month has continued to decline since 2018.

The churn scenario varies based on location type and city, with urban and suburban areas usually experiencing higher levels of churn. In 2020, churn peaked at 5.8% in urban areas, 5.2% in suburban areas, and only 3.2% in small city/rural areas. In 2023, churn rates reached 3.6% in urban areas, 3.7% in suburban areas, and 2.2% in small city/rural areas. This pattern reflects the demand shifts during the pandemic, with large cities seeing a more pronounced spike in churn due to a more substantial drop in demand. Conversely, rural areas became more popular for guests seeking outdoor experiences, resulting in fewer listings leaving. This pattern has been consistent since 2018, with churn rates in all location types lower in 2023 than before the pandemic, indicating that fewer hosts are exiting the STR market.

While there was a slight uptick in churn in mountain/lake and coastal markets between the summers of 2022 and 2023, not all U.S. cities in these markets witnessed an increase. For example, churn rose in San Diego, Miami, and Long Island but declined in St. Petersburg and Lake Tahoe. In other cities, such as Cape Coral/Fort Meyers and Big Island, Hawaii, churn remained relatively unchanged between this year and the previous year.

Overall, the performance of the housing and STR markets contradicts the Airbnbust theory. Elevated home values, a constrained housing supply, and low mortgage delinquency rates debunk the idea that hosts are deserting their properties and causing a decline in home values. As of June, nearly 95% of single-family homes could meet their monthly mortgage obligations, and home values had rebounded to record highs. Churn in the STR market has been on a consistent downward trend since 2018, and the percentage of total rental properties exiting the market remains historically low. Furthermore, RevPAR increased through late 2020 and 2021 and has stabilized after its peak in 2022. High and stable RevPAR, combined with low mortgage delinquency and churn rates, suggests that rental hosts are here to stay. The prospect of an Airbnb-induced housing market crash appears highly improbable.