Air B n Bust?

The Barbie Malibu DreamHouse is Airbnb's most popular listing ever, with more than 250 million social media impressions since it was announced, according to the company.

AirBnBust?

Many Airbnb hosts are finding it more difficult to fill their rooms and homes, and have taken to social media to air their grievances. This is happening at a time when short-term rentals are still setting records, with August setting a record of 21.2 million nights booked (source: AirDNA), despite scorching hot temperatures, wildfires and a Florida hurricane. What’s going on? Where are all of these guests staying? Is Airbnb ready to bust? Or is it just the hosts who are in trouble?

Vacancies are Up
Superhosts have begun complaining of vacancies, of unfair treatment in host/guest squabbles, of squatters and unsavory guests who game the system, and more. Of course, the biggest concern is that their listings are sitting idle, or that they are having to lower their prices for the first time in years. According to AirDNA, the occupancy levels for short-term rentals dipped below 2019 levels in August, at just 60.4% occupancy on average for August 2023, which is -4.2% year over year.

For those hosts who are just hoping to earn a little supplemental income, this might be fine. However, there are a lot of people who purchased a 2nd home in 2021, who are expecting the income generated by short-term rentals to cover the price of ownership, at minimum. As you can see in the chart above, summer tends to be the best in terms of occupancy. November and December could dip under 50% occupancy, if the trend line in 2023 shadows the occupancy levels of  2019.
 
Why are occupancy levels dropping while more nights are being booked than ever? There has been a surge in supply (available listings).
 
Supply is Soaring
According to Airbnb CEO Brian Chesky in the 2Q 2023 earnings call of August 2, 2023, “In Q2, supply grew 19% year over year.” Time magazine (quoting data from AirDNA) reported that “The number of available short-term rental listings in the U.S. skyrocketed to 1.38 million in September… a 23.2% year-over-year increase.” The glut in supply has two primary causes.
 
2021 Vacation Home Buying
In 2021, with mortgage interest rates at rock-bottom, cash accounts offering nothing to savers, and Work From Anywhere gaining in popularity, many homeowners decided to buy a 2nd home. Real estate brokers talked up all of the extra income homeowners could earn on Airbnb. (Real estate brokers benefit from the commissions on the home purchase.) Our team was getting inquiries left and right about this. Should I buy a home and rent it out?  
 
Buying high in real estate is risky, even if you are banking on covering most of your costs with rental income, especially if home prices, rental income or occupancy drop. (We cover this in our Financial Freedom retreats and our Real Estate Master Class. There is also a Real Estate section in The ABCs of Money 5th edition.)
 
2023 Strained Family Budgets
Many Americans have burned through their savings and are looking for other ways to make ends meet. Renting out an extra bedroom, turning the garage into a studio, or even building a low-cost ADU* in the backyard has become popular. This trend is also increasing the supply of available short-term rentals.
*Additional Dwelling Unit
 
More Affordable Prices?
Airbnb CEO Chesky reported in the 2Q 2023 earnings call that “hosts have started lowering their prices, with more of them offering weekly and monthly discounts.” While this is great news for housing unaffordability (if the trend continues), it could be a disaster for hosts who purchased that 2nd vacation rental in the past few years, who now have to lower their prices to compete. There have been reports of some fed-up hosts leaving the short-term market, and turning to long-term tenants – off the Airbnb platform.
 
Airbnb Revenue
So far, Airbnb is showing no signs of a bust. While hosts are suffering from higher vacancies and lower prices/revenue, Airbnb is posting record revenue and profits. The company had $8.4 billion in revenue and $1.89 billion in net profit in 2022. (More hosts in more markets is working for the company.) Airbnb’s second quarter revenue was up 18% year over year, and the company is expecting 14-18% YOY growth in Q3 2023, with revenue of $3.3 to $3.4 billion. 3Q 2023 results should be announced around November 3, 2023.
 
Before you move into an investment, the price-earnings ratio on Airbnb is a lofty 38. Additionally, the travel sector tends to be hit hard when the economy slows down or a recession finally arrives, as do most stocks. A rising tide lifts all ships, while a sinking tide can drown them.  
 
Airbnb versus Hotels
Airbnb and other short-term rental websites are being blamed for everything from the problems in hospitality commercial real estate to housing unaffordability – not  just in the United States, but around the world. Many cities have cracked down on Airbnb listings. Some require hosts to register with the city and pay hotel-like bed taxes. Others, like New York City and Santa Monica, California, have an outright ban on short-term rentals.
 
Many hotels are raising their room rates and enjoying year-over-year revenue growth. However, many still have a debt hangover from the Great Recession, which was exacerbated by the pandemic lockdown and COVID protocol. A lot of beloved hotel brands are carrying a great deal of legacy debt. Wynn, MGM and Hilton are all speculative grade (junk bonds). Marriott, Las Vegas Sands and Hyatt are at the lowest wrong of investment grade (as is Expedia, the owner of VRBO). By comparison, Booking.com (Priceline) has a credit rating of A- (S&P Global) and Airbnb’s debt-equity ratio is .46 (source: Morningstar). If you’d like an updated Travel Stock Report Card (from Oct. 1, 2023), email [email protected] with Travel Stock Report Card in the subject line.
 
Airbnb: Not the Only Game in Town
Many different hosting platforms are now very active. A lot of hosts who used to be exclusively on Airbnb are now branching out to other platforms. VRBO has always been a well-known and strong competitor. However, Booking.com has added hosts to its hotel listings. Other popular platforms include TripAdvisor, CraigsList (where a lot of hosts try to get around regulations) and TravelNurses.com.
 
While hotel prices remain higher than the average short-term rental listing, guests have an incentive to keep opting for the house-share platforms. However, will hosts find the shrinking occupancy, increased competition and lower revenue worth the trouble?
 
Sharing platforms like Airbnb have to navigate between pleasing the hosts on their platform, while ensuring a quality experience for their guests, all while having never seen the majority of the properties they offer (unlike hotels!). Airbnb is anticipating that artificial intelligence will aid them with their customer care and dispute resolution going forward.  
 
Bottom Line
The AirBnBust is happening to hosts more than the company (so far). However, travel and hospitality companies suffer greatly when the economy enters a recession, or when people can’t afford to take a vacation. With personal savings rates at an all-time low and a potential recession on the horizon, it’s a good idea to be ahead of this trend and to make sure that our personal budget and wealth plan are intact.
 
We will be hosting a Real Estate Master Class in Spring 2024. However, if you were one of those homeowners who purchased over the last few years, hoping to monetize on Airbnb, only to discover that you’ve got a lot of vacancies, it might be a good idea to do a risk analysis through our private coaching program or to attend our January New Year New You Financial Freedom Retreat. Click to discover the 15+ things you’ll learn, to read testimonials and for pricing and hours. Email [email protected] with questions. Register for the Jan. 2023 retreat by Halloween and receive the lowest price and a 50-minute private prosperity coaching session (value $400).



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Natalie Wynne Pace is an Advocate for Sustainability Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is were released in 2021. Follow her on Instagram. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.