‘Wealthion’ is a YouTube channel that I enjoy following.
A week ago, Wealthion founder (Adam Taggart) interviewed a social media platform influencer — Amy Nixon — on “X, formerly known as Twitter”.
During the 40 minute interview, Amy carefully explained to Adam why she has “zero reasons” for optimism that an AirBnBust will be avoided. It was a very interesting discussion, and the 504 comments were equally informative to read.
Her logic is that AirBnB corporation was very lucky to receive a trifecta “perfect storm” of advantages, included the lowest interest rates in 15 years, pandemic restrictions on international travel (captive USA travel audience), trillions of dollars pumped into the USA economy, and an explosion of work from home jobs (post-COVID travel boom) … all happening while AirBnB corporation was able to “run ahead of regulations”.
The result was a surge in AirBnB corporate stock valuation, and lots of corporate money being created.
60% of AirBnB users are Millennials. Today, Millennials are very frustrated with the drop in discretionary “travel revenge”, regional STR scrutiny, higher input costs, higher mortgage rates.
Unfortunately, many STR operators that bought STRs with “hot money” will soon get washed-out. Retail buyers that purchased STRs in 2020 – 2022 with little experience, and a Fear Of Missing Out (FOMO) on big dreams of strong cash flows. The net affect could be a flood of housing inventory (for rent and for sale) in regional markets where higher STR concentration exists.
On the demand-side, “travel revenge” is slowing (peaked in late 2022). On the supply-side, competition for STR bookings is rising (especially within saturated STR markets)… both happening as STR owners cling onto their 10% equity which they may have earned in the last few years.
Many STR advocates are asking, “Where is the bust”? One theory is that STR influencers underestimated the final FOMO within the current housing cycle, as witnessed by smart experiences STR owners who started selling their STRs in late 2022. Some refer to this phenomena during the later stages of a housing boom as “fools rushing-in” as new investors buy over-priced STRs, using 8% mortgage loans, that do not properly cash flow.
Late entrants are hurt first (“last-in, first-out”) when the housing bubble pops because they are over-leveraged and enter late into an over-saturated cash flow. I’m not a fan of inexperienced STR buyers being called by STR influencers as the few “greatest fools” before the housing market sentiment shifts.
Many regional STR markets are now experiencing very poor STR metrics. Average ADR (30 days) down, Average Occupancy Rates (30 days) down, Seasonalized RevPan down. In total (2023 compared to 2022) “lower highs (peak), and lower lows (troughs)” meaning travel occupancy across the board is down – across the annual seasons.
Average Active Listings (30 days) is flat or down (in over-saturated marketplaces). Inexperienced STR owners are bleeding-out their modest equity as the Federal Reserve is holding interest rates higher for longer… what some YouTubers call a “Willy Coyote” moment: where hope dissipates to the gravity of much higher interest rates. As this unwinding occurs the “greater fools” keep propping up the STR active listing inventory by taking on ownership away from the more seasoned STR owners that sell.
Some influencers point out the cultural socioeconomic woes as evidenced by a frustrated millennial generation observing the destruction of a “millennial friendly” business model (sharing economy, community oriented use of under-utilized resources like spare bedroom being affordably shared).
A utopia for Millennials, being polluted by corporate greed to build-out mini-hotel empires.
Further polarizing Millennial sentiment is some Millennials advocating that the only way to get ahead is to become an STR landlord, while another millennial sentiment is that they do not want to be a part of a corporate system that makes so many problems for communities and society. All the while these mindful Millennials remain resentful for having to rent STRs from less-thoughtful millennial STR landlords.
Hopefully the AirBnB phenomina is contained. Disinflation, higher interest rates, and student loan repayment burdens may not allow for a controlled unwinding for recent over-leveraged Millennial buyers of STRs.
Hopefully, a credit event — a “black swan” event like a garden-variety recession — is avoided, as that would cause job losses, and a substantial hit to discretionary spending on travel. The AirBnB business model has never been tested in a 1-2 year recessionary economy. Some STR influencers and YouTubers have predicted that a recession could result is a mass dumping of STR inventory, and a reprising of homes available for families (for rent, and for sale).
What is really crazy is that 62% of USA Listings for STRs were added since 2020, as “johnny come lately” STR buyers rushed in. Today it appears the bloom may have come off the rose because it is estimated that about a quarter of the 62% of STR (created 2020 – 2023) were purchased with Adjustable Rate Mortgages.
62% of USA Listings for STRs may be owned by landlords who may not have imagined or planned for higher interest rates, or the affect of inflation (higher utilities, more expensive property insurance, higher property taxes) while STR revenue is trending flat or down. This could lead to lots of vulnerability as the overall housing market resets and comes back down to historical norms.
Hank Lydick took ‘early’ retirement to build a home in Austin, Texas, and a cabin in Pagosa Springs, Colorado.