The Impending Airbnb Bust: Opportunities for Homebuyers and Investors

The Impending Airbnb Bust: Opportunities for Homebuyers and Investors

The short-term rental market, including platforms like Airbnb, has experienced a significant downturn since the second half of 2022, leading many Airbnb operators to consider selling their properties. With a 50% decline in revenue reported in some cities, the combination of reduced travel demand post-pandemic and a surge in Airbnb supply has resulted in financial losses for operators. This blog post delves into the data to explore the implications of this trend and the potential buying opportunities that may arise in the real estate market. 

Understanding the Market Conditions:
It is vital to grasp the national trends before delving into specific city data. Over the past seven years, the number of Airbnb rentals in the US has surged from less than 200,000 to nearly 1 million in 2023. In contrast, the number of homes listed for sale has drastically decreased, falling from around 1.2 million pre-pandemic to less than 600,000 today. Consequently, there are currently 65% more homes listed for rent on Airbnb than those available for sale. This surge in short-term rentals can be attributed to investors purchasing properties for rental purposes and existing homeowners opting to list their houses on Airbnb instead of selling them.

The Airbnb Revenue Crash:
However, signs indicate that the expansion of Airbnb listings might be reaching its saturation point in 2023, leading to a "booking slowdown" warned by Airbnb's CEO. In the first quarter of 2023, vacation rental management companies reported a 13% drop in revenue per property, suggesting a significant decline in Airbnb operator earnings. The most notable revenue declines have occurred in the Southwest and Mountain West regions of the country, with cities like Austin, Phoenix, Denver, and San Antonio being the hardest hit. In fact, out of the 182 counties in America with the highest number of short-term rental listings, 179 experienced a decline in revenue per listing, with an average decrease of 29% from the previous year.

Phoenix as Ground Zero for the Airbnb Bust:
Phoenix, Arizona has become the epicenter of the Airbnb bust, characterized by a massive surplus of short-term rental properties. Over the past seven years, the number of Airbnb listings in Maricopa County has increased by 500%, with a significant surge occurring in the last 15 months amidst a housing market downturn. The rise in Airbnb listings, from 10,000 in early 2022 to nearly 18,000 in 2023, coincided with a decrease in homes listed for sale, dropping from an average of 14,000 pre-pandemic to 7,800 in May 2023. Consequently, the Airbnb Supply Ratio in Phoenix stands at 2.3x, indicating 2.3 listings on Airbnb for every 1 house listed for sale. This oversupply in the Airbnb market, coupled with an undersupplied For Sale market, suggests that struggling Airbnb owners may opt to sell their properties in the coming years.

Implications for Urban Areas and Vacation Destinations:
The imminent Airbnb bust will have a significant impact on two types of locations: dense urban areas with a high concentration of Airbnb inventory and popular vacation destinations. Cities like Phoenix, Scottsdale, Paradise Valley, and Tempe in Arizona, as indicated by the Airbnb heatmap, show clustered Airbnb listings. These areas are likely to witness an increase in properties listed for rent or sale. However, distressed Airbnb operators might choose to rent out their properties long-term, contributing to a surge in rental inventory. Metros like Nashville, Dallas, Phoenix, Las Vegas, and Tampa have already observed a substantial rise in apartment vacancies and vacant houses available for rent, potentially catching institutional landlords off guard.

Opportunities for Homebuyers and Investors:
The impending Airbnb bust presents a positive trend that could rebalance the real estate market and offer opportunities to homebuyers and investors in 2023 and 2024. The decrease in Airbnb supply is expected to increase both For Sale and For Rent inventory, putting downward pressure on home prices and rents. Consequently, prospective homebuyers and long-term real estate investors who have been observing the market from the sidelines may find favorable conditions for entering the market. Moreover, as the Airbnb supply stabilizes, rental revenues are likely to recover, creating new opportunities for aspiring Airbnb investors, particularly in heavily impacted markets.

The depth and timing of the Airbnb downturn and the resulting opportunities vary from city to city and neighborhood to neighborhood. It is crucial for homebuyers and investors to understand the exposure their respective cities and neighborhoods have to the Airbnb bust in terms of oversupply and declining revenues. By analyzing the data, individuals can make informed decisions and seize potential investment opportunities. As the Airbnb market corrects itself and inventory adjusts, the real estate spectrum is poised for a reimagination that will influence the market landscape in the years to come.