Real Estate: The bursting of the AirBNB bubble will soon lead to a US real estate tsunami

29 June 20232 years babelfish

Many Airbnb owners will soon be forced to sell their properties, causing a real estate crisis that in some cities could be comparable to the subprime crisis of 2008 , this is because AirBNB can no longer be the lifeline for homeowners in the USA. Even AirBNB has become a bubble that is preparing to burst .

These Airbnb owners are preparing to sell due to the “Airbnb crisis,” a downturn in the short-term rental market that began in the second half of 2022, with Airbnb operators facing 50% declines in some cities of revenue. The drop in revenue is the result of a post-pandemic slowdown in travel demand and a massive increase in Airbnb's supply, trends that are causing many Airbnb operators to lose money on their rentals.

These losses will trigger a sell-off that will engulf the housing market and also lead to massive defaults because:

revenue plummeted and
the offer on Airbnb has increased excessively

This collapse varies from city to city, but it is spreading and risks being a real tsunami for the US real estate market.

Aribnb here is understood as a sector and includes not only the original company, but also all the imitators and spin-offs of the main market.

65% more Airbnb than homes for sale in 2023

But before we get into the city-specific data, it's important to understand the broader national trends. Notably, the number of Airbnb rentals in America has jumped from fewer than 200,000 seven years ago to nearly 1 million in 2023, according to data from AllTheRooms.

At the same time, the number of homes for sale has plummeted, from about 1.2 million before the pandemic to fewer than 600,000 today, according to data from Realtor.com. The result is that there are currently 65% more houses for rent on Airbnb than those for sale.

There will be nearly 1 million homes listed on Airbnb in 2023, compared to only 570k listed for sale (Source: AllTheRooms/Realtor.com)
The increase in rentals on Airbnb has been caused by 1) investors buying homes to rent short-term, and 2) existing homeowners deciding to list their homes on Airbnb instead of selling them. A double blow that sucked stocks out of the US housing market.

50% drop in Airbnb revenues in some cities

There are signs that this upward trend in Airbnb listings could end when the market reaches saturation in 2023, with the Airbnb CEO warning of a “booking slowdown” . At the same time, vacation rental management companies reported a 13% drop in revenue per property in the first quarter of 2023.

It's clear that something is wrong: the deluge of offers from Airbnb in recent years is intersecting with a slowdown in travel demand due to the recession. A cocktail that is leading to a revenue slump for Airbnb operators across America.

The slump is most evident in the Southwest and Rocky Mountain areas, where Airbnb revenue per listing was down 40-50% year-over-year. Homeowners in cities like Austin, Phoenix, Denver and San Antonio were hardest hit, according to data from AllTheRooms.

But the declines have not been isolated to these areas. Of the 182 US counties with the most short-term rental listings, revenue declined in 179 of them (98%), with the average county reporting a 29% decline in revenue per listing, comparing the period three months from March to May 2023 with the previous year.

The Phoenix case, that is the starting point of the Airbnb crisis

The epicenter of the Airbnb crisis is undoubtedly Phoenix, AZ, a market that is now plagued by a huge supply of short-term rentals, with the number of Airbnb rentals in Maricopa County increasing 500% in the past seven years.

Most of this listing growth has come in the past 15 months, when the downturn in the Phoenix housing market prompted many landlords to list their properties on Airbnb instead of selling them. As a result, Airbnb's supply has increased from 10,000 in early 2022 to nearly 18,000 today.

Airbnb listings in Phoenix have increased 500% in the past seven years (Source: AllTheRooms)
At the same time, listings for sale on the Phoenix real estate market plummeted from an average of 14,000 before the pandemic to 7,800 in May 2023.

This resulted in Phoenix's short-term rental supply ratio, calculated by dividing Airbnb listings by homes for sale. The resulting ratio in Phoenix is 2.3x, indicating that there are 2.3 listings on Airbnb for every home for sale.

Maricopa County's historical supply ratio is much lower at 1.0x, reinforcing the notion that the area's Airbnb market is oversupplied while the market for homes for sale is undersupplied. A situation that will likely correct itself in the coming years, as struggling Airbnb owners decide to sell their properties.

In some cities, this correction could be comparable to the subprime crisis in terms of the amount of inventory hitting the market. Particularly in an area like Sevierville, a tourist destination in East Tennessee, where the number of Airbnbs currently outnumbers homes for sale 10 to 1! Who can occupy all these temporary rental houses?

What happens to holiday cities?

First of all we note that, in general, secondary suburbs have an increase in the number of AirBNB offers compared to the center.

You can get an even better idea by looking at the short-term rental supply ratio in a city like Austin, TX, another area that was hit hard by the Airbnb bankruptcy. In Travis County, which is Austin's largest urban county, there are nearly 9,200 rentals on Airbnb compared to 4,000 listed for sale, resulting in a 2.3X higher supply ratio.

But in Williamson County, the suburban area north of Austin, the tables have turned and there are more homes for sale. As a result, the Airbnb crisis will hit urban Travis County much harder than suburban Williamson County.

However, the more you go to the countryside, especially towards holiday destinations, the more temporary rental offers explode. Nearby Fredericksburg, TX, located about two hours west of Austin, has an offer ratio of 6.3x, indicating there are over 6 Airbnb listings for every home for sale. This highlights the potential for a steep price drop as the Airbnb crisis worsens.

Expect to see more “For Rent” then “For Sale” signs first

What will happen when landlords realize that oversupply cuts or negates profits from temporary rentals? We can expect two moves:

first of all we will see an increase in the supply of long-term rental housing. This will lead to a drop in profits for this type of contract precisely due to the excess supply, even if this, from a social point of view, will lead to an improvement in the conditions of many Americans who can no longer afford to have a home Property;
then we will have a lot of "For Sale" signs.
if the sales involve real estate financed with real estate loans and the sales are not fast enough, then we will have a flood of real estate executions and auction sales, resulting in a further reduction in real estate values.

To conclude: temporary rentals, such as AirBNB, have been an unexpected income for many landlords that has allowed them to meet the payment of mortgage payments. But in many areas there is now an oversupply and incomes are plummeting. There is therefore the risk, almost suddenly, of witnessing a wave of catastrophic real estate sales and executions that could bring to mind the real estate crisis of 2007 . Meanwhile, the FED wants to raise interest rates again.

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The article Real Estate: the bursting of the AirBNB bubble will soon lead to a real estate tsunami in the US comes from Scenari Economici .

This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/immobili-lo-scoppio-della-bolla-airbnb-portera-presto-ad-uno-tsunami-immobiliare-negli-usa/ on Thu, 29 Jun 2023 08:00:31 +0000.