The short-term rental market is unstable.
Let’s discuss the short-term rental area, shall we? This market has had quite a few ups and downs lately. Looking at the numbers shows Airbnb reached notable milestones. They reported huge revenue and profit in late 2022. Strong demand and better daily rates were key reasons. It felt like everyone wanted a small piece of the pie. Vacation rentals drew lots of people in. This high demand really got people interested. Real estate investors saw huge potential. Many people started buying lots of short-term rental houses. They wanted to profit from this market boom fast. It seemed like a simple path to fast money in property.
But sometimes things too good aren’t true. Tony J. Robinson hosts The Real Estate Rookie podcast. He calls the past three years “sort of a gold rush.” This painting is a clear picture, yes? Like old gold rushes, investors seemed drawn by glitter. They often did not have the tools needed. Tony says many who chased quick money will leave. He thinks the first big wave will back out.
Talking financials, this becomes interesting. A Bloomberg Markets story noted these Airbnb empires. They were often funded with very risky loans, you see. Loans were not backed by large down payments. They weren’t backed by stable salaries either. Future rental earnings were the funding basis. That method works when booms boom strong. What if the short-term rental boom were to bust? This could cause major problems. Not just for investors, but also for banks funding them. It puts the whole business on shaky ground.
Few experts think a 2008-2014 housing crash will repeat.
Mortgage lending standards are higher today, you know. But loans backing vacation rental owners might not be strong. Instead of typical home foreclosures flooding the market. We might see something very different happening now. The property market could see too much supply. This might happen where tourism drives the economy. The supply glut source would be those investors themselves. The ones buying houses through the pandemic times. It’s a weird twist; the problem solution could make a problem.
Jamie Peters shared some thoughts via email. She helps lead accounting at Maryville University. Nationally, it takes a huge dumping of Airbnb houses. She thinks this is needed to cause a crash. Local effects might be large, she notes. But a national collapse from Airbnb sales seems unlikely. This holds given how the market is now. The overall housing market is still really tight. Demand greatly exceeds homes for sale still. You hear stories of buyers looking for months. Making many offers and still finding nothing. Jamie Peters adds homes for sale are few. There are fewer than 800,000 homes nationwide. Inventory level remains very low, she cites data.
So if Airbnb investors sold many places they owned. It might not start a national crisis. Instead, it could help stressed homebuyers outside. Finally freeing up some homes available. The market desperately needs homes now. This is an interesting possible result, you see.
But look closer at the supply side now. This area has changed really fast lately. Airbnb hosts added listings fast, you know. AirDNA analyzes industry data, they say. Total short-term rentals hit 1.38 million units in September. That is a big 23% increase from one year ago. A massive 62% of listings started since 2020. Think about that growth in just a few years.
Supply growth not uniform across country.
It is much more in certain spots, you know. Phoenix and Scottsdale saw a huge jump. Listings increased 44% year over year there. Las Vegas was close with a 36% rise. These were Sun Belt cities booming during the pandemic. They attracted people and investments greatly. These cities saw huge jumps in Airbnb supply, though. Now they are seeing housing prices drop fast. Prices are down over 4% from their spring high point. Intense demand and investment drove prices up. The short-term rental rush helped this often. That might be cooling now, some think. Increased supply of listings may play a role.
Not just big cities saw growth and shifts. Small-town places had rentals almost double. This happened between 2019 and 2022, period. Travelers sought fresh air and solitude then. This was a direct result of pandemic wants. What happens if travel goes back to before? Jamie Peters thinks these rural areas are in danger. Properties bought for rentals often are special. They are big mansions with hot tubs sometimes. These cannot be easily changed to other uses later. Lack of other uses in rural areas makes them risky. A small city apartment is different. Jamie points out that the apartment always can be rented long-term. It is typically less profitable, of course. But trying that with a big seven-bedroom mansion? In rural Georgia, this is harder. The investment is less flexible, you see. So it is potentially riskier often.
Tony J. Robinson manages 30 properties across the country. He agrees on concerns about rural slowdown. He shares his own viewpoint on it. Converting his Tennessee properties wouldn’t make money. He says this lack of alternative is key. So he would want to sell them fast. This shows a risky position for many owners. Especially in markets less flexible, he believes.
The hosts also start to issue warnings.
Growing worry about problems isn’t only for experts. Hosts themselves have started signaling caution. There is talk of an “Airbnbust” floating now. It was fueled by a viral tweet by a host. This kind of talk from hosts is important. It means the constant upward path is hitting bumps. At the same time, backlash against Airbnb grew. Guests and media commentators complained much. We heard complaints often, you see. High prices and weird fee structures came up. Rentals did not match what was promised sometimes. Brian Chesky leads Airbnb as CEO. He addressed these worries openly on Twitter. He stated, “I’ve heard you loud and clear,” promising improvements soon. This shows the pressure on the top is real.
Maybe guests are unhappy; inflation hits budgets now. Or travel habits are truly shifting for people. Data shows demand for rentals softening. Airbnb lowered its forecast for Q4 earnings too. AirDNA data supports this trend ongoing. Occupancy rates went down 1.2% last year. This number is telling everyone you see. It strongly suggests supply growth is faster. It is outpacing current demand greatly now.
But simple supply and demand aren’t the only issues. Other big factors could make owners sell. Regulations are becoming more important now. Look at New Orleans city; you can see. The council there banned new rentals temporarily lately. Palm Springs is popular for rentals, you know. They capped rentals allowed per neighborhood there. These examples aren’t the only places doing this. Cities are actively acting against rental spread.
Jamie Peters points out two key dangers. This happens in areas where tourism drives money. First she says rental supply means more competition. So prices are likely to go down for hosts. More listings means fighting for the same tourists. This pushes down nightly rates, impacting profit, you know. Second, she highlights risk when demand slows. Like maybe during a recession time, you see. “Leveraged, amateur owners are likely to be the first to need to sell,” she states. They lack the financial cushion professionals often have.
Let’s focus on one specific place. See how these things are playing out there. Joshua Tree, California, and high desert nearby. Bryan Wynwood sells real estate twenty years there. He remembers it was a small dusty town. Near the national park it sat for years.
It grew over time attracting people from LA. They sought a pretty place cheaper than Palm Springs. But the true boom came during the pandemic you see. As city folks looked for safe places.
Joshua Tree saw a massive growth occur. Home prices jumped way up there. Multiple offers came for every property listed. Homes were bought very fast in days. A big reason for buyers was rental potential.
If they didn’t live there full-time, Airbnb was an option. Bryan describes it as not realistic, you see. “The pandemic created a stampede from the city, bidding homes up to unsustainable highs.” Frenzied buyers rushed in quickly. “And that itself pushed the prices up,” he notes. Bryan’s view gets to the main point for recent buyers.
He thinks few new owners had experience. Running a vacation rental was new, you see. They were buying the Airbnb dream, he said. It felt like easy passive income for them.
A simple investment during a boom time.
Data from AirDNA shows area growth, you see. In Joshua Tree and Yucca Valley places. Rentals grew 50% and a huge 141% there. This was from March 2020 to March 2024. Even tiny Landers saw big rental growth. It went from 84 rentals to 185 in four years. The supply increase was immense, you see. The reality of running rentals hit owners, though. Occupancy slowed in late 2022 and 2023. Profit wasn’t meeting hopeful expectations many had. Madalaine LaVoie has sold real estate for 30 years there. She notes a key issue for hosts, you see. Most tourists visit the desert mainly on weekends. This leaves rentals empty, not earning money. If someone bought a home priced high, you know. The math didn’t cover costs, you see. Making profit was hard with low weekday rentals.
Madalaine is direct about buyers consequences. “If you bought in 2021 or early 2022, those people all got hurt.” They bought at prices too high for them. Likely thinking high occupancy was guaranteed. That did not happen, especially on weekdays, no. The investment just has not worked out as hoped.
Bryan Wynwood hasn’t seen many foreclosures yet. Not in Joshua Tree Place, at least now. He thinks he will see more coming soon. He has sold five foreclosures this year already.
Getting calls from banks is new for him. This suggests a shift is starting, you know. Financial stress is beginning for some people. Not only money issues make owners sell.
Jonathan Ader is an agent for Redfin. He has clients selling rentals bought early on. Even if they were making money, they sold. They just didn’t want the work anymore, you see. It was much more work than they thought. Even with money coming in fine.
The effort felt like “too much work,” they said.
Jonathan hears this complaint very often. For many, these rentals were first investments. They jumped on the Airbnb train, it seems. Maybe they did not expect the work involved. Managing guests and cleaning take time. Maintenance and marketing are needed too.
Being a host proved too much for some. People with experience managing rentals often stayed. Bryan Wynwood notes these are the ones. They understood the work involved upfront. They had better expectations about profit. He still thinks rentals can be a good investment.
In the Joshua Tree area right now, they can. It has unique appeal and steady visitors. Also, few laws govern rentals compared to nearby. Yucca Valley caps rentals at 10% of homes. Twentynine Palms limits to 500 total. Neither city reached their limits yet.
Joshua Tree has no overall limit now. One owner is limited to two rental places, though. This lack of rules made it good for investors seeking options.
How long this less-regulated time lasts is unclear. Concern grows about housing affordability here. San Bernardino County studies rental impacts now. More laws could be coming soon, you know. This may change things for owners later. Stricter rules have already rolled out nearby. This happened in the Coachella Valley area. Jonathan Ader notes his buyers look there first. In places like Palm Springs, first, he said. But they find problems quickly there. They get less property for their money too. Also cannot run it as a short-term rental often. City and neighborhood caps stop them there. This makes them look towards the Joshua Tree area. Prices were more affordable for them. Rental laws are more flexible, they find.
The market adjusted this year, you can see. Some agents feel it is familiar again. Madalaine LaVoie says it feels like normal. “It’s just like 2019 right now,” she says. Sales volume-wise, maybe this holds true. But prices definitely are not what they were five years ago.
Joshua Tree median price, April 2024. It was $326,000, you see. That is over 50% higher than 2019. The median price was $213,000 back then.
Yucca Valley saw an even bigger jump occur. It was up 106% higher, you know. So the craze stopped, but prices are high. Prices dropped from peak pandemic times.
Bidding wars are much less common now. Some homes sit longer for sale. Bryan Wynwood describes current time. Demand for buyers is now very limited. The rush from the city ended mostly now. Work from home slowed down too, you know.
Demand for rural homes is less, he says. He thinks it’s a buyer’s market now here. “There is still too much inventory and not enough buyer demand,” he states. But he sees chances in this market fix. “There are lots of good deals out there,” he adds.
This view suggests owners buying high face issues. But savvy buyers entering may find chances.
Let’s look at the Arizona area fast. It made news for rental profits there. A study figured potential owner earnings. Comparing average Airbnb cost to wages.
Results were striking indeed for some. Seven of the top ten profitable cities were here. In the Valley of the Sun area, you see. Seven cities are in the top ten list.
That highlights big changes in some markets. Scottsdale ranked as the most profitable city. Average Airbnb income is 55.9% of wages there. Scottsdale has high wages at $804 a week.
But the average Airbnb price of $449 a night made it stand out greatly. Tempe and Charlestown tied for second place. Rental income equaled 50% of the city wage there. Tempe’s average night was $402 for visitors. Phoenix was third at 47. Based on the $385 average night cost for guests. Glendale was fifth, Gilbert sixth, and Chandler seventh. All showed good profits versus local wages there. Mesa was number ten on that list.
Arizona is so profitable, you ask? Study and context point to a few things. Scottsdale benefits from events like golf. Tempe is boosted by ASU campus busy time. Phoenix draws visitors for attractions. Major events like the Super Bowl bring people. Sky Harbor Airport sees many travelers arrive. Glendale is home to a football team, you know. These cities have drivers for demand. Consistent demand for tourism is high. Short-term stays are popular there.
Even in these markets, regulation is rising. Adding more issues for hosts, you see. Starting is not simply listing a room now. To run an Airbnb in Maricopa County. You need to meet several standards there. First, get a city permit you must. Then get a state tax license as the next step. This is needed to handle sales taxes, right? Finally register with the county assessor’s office. That is a few steps before you can list.
Things get harder with city-specific rules. These have changed a lot over time now. State law in 2016 stopped local rule. Prevented cities from regulating rentals, you know. This caused a huge increase in rentals then. Sadly, it led to problems occurring, you see. Residents complained about noisy “party houses.” Disrupting neighborhoods was a common issue. Lowering life quality for people there. Some rental parties even had gunfire happen.
Public complaints led to action being taken. The new law gave cities rule-making power. Many cities in the Valley made new rules. This happened for hosts in late 2022 and 2023. Major parts of rules are the same across cities. Tempe, Scottsdale, Mesa, and others followed. Paradise Valley, Goodyear, and Peoria too.
New rules ask owners to get city licenses. Pay a fee of up to $250 for it. This simple step lets cities watch rentals now. They can map properties they could not before 2016. Rules also give cities more power to act. Permits are revoked if there are three violations in a year. Even one big violation revokes a permit fast. Like allowing a large event-type party. This gives regulations more power, you see.
Another rule involves guest checks, you know. Hosts must check guest backgrounds now. Ensure no serious crime convictions happened. Registered sex offenders cannot operate rentals. This is a big step for community safety. Owners must notify neighbors nearby. This includes homeowner groups within 600 feet. They must provide a contact number too. Someone who can respond 24/7 to problems, you see. This gives local contact for issues. Aims to lessen neighborhood disruptions happening.
Cities also need proof of insurance. A sales tax license for local permits is key. These are standard business things, you see. Adds formality for hosts applying. Phoenix updated its own rules later in 2023. Mostly the same as other cities, but with specific points. Applications are approved or denied within seven days. Owners must show permits near the main door. One big Phoenix rule for platforms is important. Like Airbnb or VRBO, companies you know. Platforms must ensure properties are permitted. Before they can list them online, they must. Failure to follow this brings big fines. $2,500 fine daily for the platforms. This puts some responsibility on tech companies now.
Regulations in Arizona, Palm Springs, and New Orleans. Other places show a big trend growing now. The “gold rush” time for rentals is changing. Easy entry without much checking is ending. Profit potential might stay high somewhere. But the rules landscape gets complex very fast. It demands more from hosts today. This changes how short-term rentals work. Across the whole country, this trend happens.
Navigating this market means understanding forces better. New rules weigh more now, it seems. The easy ‘gold rush’ time appears past, you see. Reality is getting much more complex today. Cities and places start pushing back hard.
A shift is happening fast. Look at Palm Springs, California. It is known as a popular spot for vacations. That city offers cautionary tales indeed.
This shows effects when rentals hit limits there. Stricter rules can cause side effects too. Palm Springs focused on high-demand areas. They put a limit; only 20% could be rentals. In some spots, their number climbed higher. It was near 40%, well over new limits.
This rule targeted specific neighborhoods. Just lately, the city started enforcing rules. They made license needs stricter indeed. Impact proven significant, you know. Especially hitting investors buying in the pandemic boom. People who bought them felt the impact most.
Markets in capped areas seem all frozen. Homes selling fast before now sit for months. This is a big change from the 2020-2021 sales frenzies. It looks very different today.
Investors paying top dollar lose big amounts. Luan Palomera, YouTube star, serves as one example. He bought a chic place for $1.5 million. That was just two years ago now.
He expects getting $1 million is a lucky price. Data backs up these kinds of stories. In Desert Park Estates, prices fell 9%. From $908,500 down to $832,500 it went. This was a striking blow to investments made earlier.
Just a few years prior, too. Sales volume in that area fell too. Dropped by almost half over the same time frame. From 42 sales down to just 22 sales. This indicates buyers do not step in.
Local home values fell after rental rules started. The Palm Springs situation shows a growing trend. Cities around the country limit short-term rentals. Each city uses different ways to do it. New York City has a main rule.
You must be there for the entire stay. Los Angeles adopted rules too, you know. Their Home Sharing Ordinance needs a license. You rent only the main home there. Must live there six months a year. The maximum rental time is 120 days.
These rules are not random decisions. They stem from big downsides cities see. Lots of homes became rental units. A major worry for cities, you find. Airbnbs remove affordable housing, you know.
Homes for long-term residents house tourists. Reduces total housing for local people. Besides money, neighbors complain more now. Tourist influx leads to loud late parties. A general loss of quiet neighborhood feel happens.
Long-term residents liked that quiet ambience. Host and renter fights are more common. Sometimes these get quite dramatic indeed. Lengthy courtroom battles can even happen. This strains community resources and links. Academic studies quantify these impacts now.
The current rental market downturn is painful for investors. But some people view this needed correction. The argument is investor money in the pandemic. It artificially raised the market, adding risk, you see.
These groups thought growth would just continue. Used risky financing, maybe they say. Shielded by safety nets, regular buyers lack. Now the market is adjusting things.
Higher mortgage rates mean buying has less appeal. The pandemic surge in demand has reversed direction. Dynamics are shifting for sure. Companies might cling to high demands. But falling sales and lower prices paint a picture.
While bad for local values there. Could free up much-needed housing supply. Increased supply, less demand, less speculation. Could help these folks access housing finally. Previously out of reach due to investors buying. A shift in the market and rules changes the game.
For anyone getting into rentals now. Or anyone trying to stay in it. Just listing property for easy money is fading. Arizona rules detail how it is complex. Needs city permits and state tax license.County registration is required, you see. Background checks for hosts and guests too. Neighbor notification is part of the rules now. Proof of insurance you must show.
Need a higher commitment level now from hosts. Understanding and business skills are needed. Challenges extend beyond rules obeying. Supply grew faster than demand in spots. Competition among hosts became more intense. Led to lower occupancy and price pressure.Owners buying high saw math not working. Lower-than-expected occupancy hurt profits. Especially true on weekdays, most felt. Even people making money still sell.
The workload was an unexpected amount, you find. Managing guests, cleaning, and maintenance work. Marketing took effort often. Jonathan Ader, a Redfin agent, notices this.
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