In October, Jim Ewing, a former Airbnb host with a property in the Coachella Valley, posted a few brief comments on Facebook. He tapped into sentiment being expressed nationwide that even came with its own hashtag — #airbnbust.
“Has anyone seen a huge decrease in bookings over the last 3 to 4 months?” he asked a public group for Airbnb hosts. “We went from at least 50% occupancy to literally 0% the last two months.”
Initially, the post got a little bit of traction, with other hosts in the valley and surrounding desert areas chiming in. One woman from the high desert said the area was so oversaturated with competing listings that she had been forced to drop her prices. Another host mentioned that from an investment perspective, acquiring short-term rentals was quickly losing its appeal.
“Not a single booking in September or October,” said Ryan Babakhani, a host who uses another service. “It’s supposed to be the high season in [the California] desert. I’m considering cutting my losses and selling the house.”
Ewing’s original post meant for other hosts soon went viral after a screenshot was posted on Twitter. That tweet sparked weeks of social media debate, articles and op-eds in national news outlets, proclaiming the onset of the great “Airbnbust.”
Nationally, vacation rental occupancy is indeed way down, thanks to the explosion of new property listings increasing the supply.
“The number of bookings is not down. But we have 23% more listings in the U.S. today than we had last year,” said Jamie Lane, the vice president of research for AirDNA, a short-term rental analytics firm. “That means the number of bookings per available listing, or occupancy, is down pretty strongly off 2021 highs.”
Valley a unique market
But Ewing’s original post was specific to the Coachella Valley, a unique seasonal market. Could a bust really be happening in one of the country’s premier vacation destinations? The answer is complicated.
Across the valley, AirDNA’s latest report shows thousands of active rentals with an average occupancy rate of 55.5%. That’s down from the typical peak spring season when festivals such as Coachella and Stagecoach are in full swing, but similar to fall and winter seasons in previous years. The valley’s average daily rate for a vacation rental has actually increased 5% from $408 last year to $430 this year.
Palm Springs has the most active listings of any valley city, with almost twice as many as the next highest city, La Quinta. The most recent data available for the number of short-term rental permits in Palm Springs shows that permits increased about 11% year-over-year.
Despite that increase in permitted rentals, local occupancy remains almost the same as last year, according to AirDNA, at 60%. That’s contrary to most other markets in the country which are seeing marked declines in occupancy.
AirDNA also measures the median monthly revenue earned over the past 12 months. Compared to last year, there was a slight dip in revenue this September and October, which may be what set off alarm bells for new hosts.
But last month, listings in the 75th percentile hit a monthly revenue of almost $21,000, more than double the median revenue from the month before. The same is true for listings in the 50th percentile. The median monthly revenue went from $5,100 in October to $11,300 in November.
Bruce Hoban, a co-founder and board member of the Vacation Rental Owners and Neighbors of Palm Springs, is wary of some of the data from AirDNA. He prefers to measure the health of the market by analyzing the revenue Palm Springs gets from its transient occupancy tax.
By that metric, the local market looks healthy compared to the rest of the country. The Palm Springs occupancy tax statistics are only available through August but show that while summer months were down slightly this year compared to last, summer rental rates were still above pre-pandemic levels.
“Our demand still seems to be high,” Hoban said. “Hotels are sold out every weekend. Vacation rentals aren’t at 100% occupancy like that, but spring looks really good. We’ll do very [well] once we hit high season again.”
Hoban also has a theory about the huge increase in demand in vacation rentals during the pandemic.
“At Covid’s peak, the only lodging option that people felt was safe to use was vacation rentals,” he said. “Now that they’ve tried it out, they’ll start to think of vacation rentals as an option, along with hotels.”
Trouble on the horizon?
Still, the drop in occupancy seen in almost every other market may come later for the Coachella Valley after the peak travel season, according to some in the industry.
Katie Kay Mead, the longtime owner of a vacation rental in Palm Desert and a “superhost ambassador” for Airbnb, said when she looks at the short-term rental market, she sees a correction on the horizon, not a bubble about to burst.
“Honestly, we’re trimming the fat,” she said.
Mead has been a host for almost a decade. She bought her Palm Desert home eight years ago and has since become one of the top hosts in the valley. Now, as an Airbnb “ambassador”, she mentors new hosts and helps to launch about a dozen listings a week, most of which are in Southern California.
As a mentor, she has direct insight into the mindsets of new hosts, and says one of their most common concerns is that the number of bookings isn’t living up to their expectations.
Some over-eager investors who took advantage of low interest rates had an unrealistic idea of how much money they could make, she said. Mead predicted that those investors may become casualties of the vacation rental business leveling out after a huge economic boon.
“They bought houses, at a premium, in the middle of an unprecedented time for Airbnbs,” she said, referencing record-high occupancy rates last year. “In the fall of last year, we were extremely busy, it was crazy. We’re not there anymore, and new hosts were under the impression it was going to be like that forever.”
Mead has a warning for those “fair-weather investors”: The increase in listings, coupled with slightly less travel demand this year, is a “perfect storm” for a crash in the short-term rental market, she predicts.
According to the Consumer Price Index, travel costs are up compared to last year. The cost of lodging increased 4%, gas prices are 26% higher and airline fares are 28% more expensive.
After 18 months of price inflation, many would-be travelers could be rethinking their holiday plans; the inflation rate remained at 7.7% through October compared to the pre-pandemic average inflation rate of about 2%.
All those cost of living increases could be the reason why only 31% of Americans are planning to travel between now and mid-January, down from 42% last year. The majority of people not traveling said financial concerns were the biggest driving force behind their decision.
But the way Mead sees it, when and if a crash comes, not all owners will be affected.
“Great properties with great hosts are always going to do okay as long as they’re realistic about pricing and have great amenities and decor,” she said.
Some new hosts put in the minimum amount of effort and still expect a huge return on investment, she said.
“This is not passive income. This is not real estate investing. This is hospitality,” she said. “The people who bought a house for cheap and filled it with IKEA furniture and called it a day? They’re going to be in trouble.”