Housing downturn wreaks havoc on short-term rental market

Sabrina Must wonders where her vacation rental reservations have gone.

“I would have made over $12,000 a month in the summer,” says Ms. Must, 37, who for just over three years rented her two-bedroom, one-bathroom property in Encinitas, Italy on a short-term basis. California, a beach town located about 25 miles north of San Diego. “Every weekend I wanted to be booked during the pandemic, I was booked. It was a bit like this pre-pandemic. Not as busy, but still busy.

Then something changed. Ms. Must, who is part real estate investor and part content creator and consultant, noticed a significant drop in bookings starting late last spring. In August, she only had one reservation for the whole month. This surprised Ms. Must, a seasoned vacation rental host who has been in the rental game with various properties over the past decade.

“I felt a massive drop,” says Ms. Must, who at the height of the pandemic could order more than $1,000 a night on a holiday weekend, but whose rates now start at around $275 on Airbnb. . “I’m so stressed out about this.”

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Vacation rental owners across the US have taken to social media, from Facebook to Twitter to Reddit, to lament the abrupt halt to their bookings, punctuating their concern with #Airbnbust, a hashtag that has gone viral this autumn.

“I was always full,” says Lilly Lazarus, an interior designer and realtor who, since 2017, has amassed a portfolio of six short-term rental properties of varying sizes in southwest Houston. “I kept having to buy more and more houses to house people,” says Ms. Lazarus, 53, who cares for travelers seeking care at the nearby Texas Medical Center and currently charges rates on Airbnb at from around $200 per night. “Now I have an opening here for a week and an opening there for a week. It’s very unusual.

It’s the same situation for fashion designer Fiona Burbank, 30, and her husband, Francesco Pollice, 35, a client development manager for a fashion brand. In addition to running a cafe catering business together, they decided to combine their interests in design, real estate and travel and get into the vacation rental business. Since the pandemic began, they have purchased two two-bedroom, two-bathroom properties in Palm Desert, California, about 15 miles southeast of Palm Springs. They started renting their first property in October 2021. “Our bookings were excellent at first. And then nothing during the summer,” says Ms. Burbank, whose prices currently start at around $220 per night on Airbnb. They listed their second property in October 2022. “That one was really slow,” she says.

Data from AirDNA, a short-term rental analytics firm, shed light on the causes of the drought: In October 2022, the number of future nights booked – a real-time indicator of the health of the rental industry short-term rentals – was up 15.8% year-on-year.

“For anyone asking if we see any weakness in consumer booking behavior, that means no,” says Jamie Lane, vice president of research at AirDNA. “People are booking short-term rentals, and they’re booking more than ever.”

However, while the absolute number of reservations has increased, there has also been a sharp increase in the supply of short-term rental listings available in the United States, up 23.3% in October 2022 compared to to October 2021. “That’s massive growth,” Mr. Lane said. In the spring, at the height of the increase in short-term rental supply, approximately 80,000 to 88,000 short-term rentals were added per month. There has been some decline since then – it’s normal to see more new listings added before the peak summer season and some slowdown in the fall – but between 66,000 and 70,000 new listings have still been added per month since august.

The net result? In October 2022, each short-term rental property in the United States received an average of 6% fewer nights booked, Lane said.

The increase in supply has multiple causes. Taylor Marr, an economist at real estate brokerage Redfin, notes that during the pandemic, demand for second homes has nearly doubled. But, says Mr. Marr, “as the overall housing market began to cool due to the tightening economy, it impacted sellers who would put their homes up for sale. interest, they say, “Why not rent the house?”

There are also second home owners who purchased properties before the pandemic and decided the time was right to enter the vacation rental pool. “We hear these stories every day,” says Brian Egan, co-founder and CEO of Evolve, a vacation rental and hospitality management company. “All that inventory that was there is now being brought into the short-term rental market.”

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Mr Egan believes it is a combination of people whose finances are strained by inflation see where they can create income and people don’t want their properties sitting empty because it looks wasteful.

As economic headwinds continue to blow, it’s not just second home owners who are looking to the vacation rental market as a way to weather the storm. Beginning last summer, whenever Los Angeles-based screenwriter Leslie Rathe traveled for a week or more, she considered renting her main home, a three-bedroom, three-bathroom 1920s Spanish bungalow in Larchmont. Village, a quaint neighborhood nestled in the middle of Los Angeles. Her home is listed on Onefinestay, a luxury home and villa rental company with a global portfolio of 5,000 rentals. Ms. Rathe’s asking price starts at $770 per night.

“We don’t need to rent out the property, but with the current economy I would be lying if we said we’re not renting it out to earn extra income,” Ms Rathe says. She and her husband, who works in marketing, are both in their 40s and have owned their homes for a decade.

“Owners who want to succeed in such a complex and competitive market need to master three key areas: reach, conversion and experience,” says Evolve’s Egan. He explains that reach, or the number of guests who see an ad, is determined by market algorithms. Conversion, or the number of visitors who turn into customers, is influenced by the quality and competitiveness of the ad. And experience is what guests think of their stay.

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Lilly Lazarus in Houston has been working on the conversion: it has reduced overnight prices and minimum duration periods for its properties, which it says has been helpful. Fiona Burbank in Palm Desert also lowered its overnight rate. She tried to increase her reach by updating her marketplace listings with more photos, and she also promoted her properties’ Instagram accounts, which she says led to booking requests. In an effort to up her hospitality game, she decorated for the holidays.

Mr Egan said: “I think we can all agree that the next four to six quarters, until the end of 2023, we should prepare for a bear market. This could actually attract more owners to the market as they seek to monetize vacation properties and transform them from a simple big-ticket item into an income-generating asset.

Evolve co-founder and CEO Brian Egan says rental success is driven by three key factors: reach, conversion, and experience. Here are his tips for improving each one.

Reach
What it means: How many guests see an ad.
What you need to know about it: “Reach is determined by the algorithms markets use to determine which properties appear at the top of search results,” says Egan. “It’s important because, just like Google searches, most guests never get past the first page.”
How to improve it: Do your research. Many markets offer information about the priorities of their specific algorithm.

How many spectators turn into bookers.
What you need to know about it: “Conversion is influenced by the quality and competitiveness of your ad,” says Egan.
How to improve it: Prioritize professional photos and be aware of how your prices and policies compare to other homes of a similar size, in a similar location, and with similar amenities. Response time also plays a role in conversion: many owners don’t realize that their response rate and average time to respond to customers are displayed on their ad.

Experience
What it means: What guests think of their stay.
What to know about it: “Experience is crucial as it leads to reviews and review scores, which directly impact the reach of an ad and can ultimately determine the success or your vacation rental fails,” says Egan.
How to improve it: Owners should think of themselves as micro-hoteliers and try to carve out a niche for their vacation rental. Think about the type of guest you are looking for and think about how to meet their needs and raise the bar for their stay. Work on ironing out any sticking points that may arise when someone visits. For example, be proactive and send important information to guests well in advance of check-in, such as the Wi-Fi password, instructions for entering the property, and a contact number to reach you 24/7 In case of problem. Remember that all guests want to be treated with a sense of hospitality. Either way, make sure the property is ready for arrival and, most importantly, meets or exceeds the expectations set out in the listing.