Are Short Term Rentals Profitable in 2023?

Supply is increasing at a much faster rate than demand for short term rentals.
Mortgage demand plunges as interest rates increase.
Rents decline MoM for the 4th month in a row.

What's happening in real estate

🚀 The fall of short term rentals? Short term vacation rentals are no longer generating as much steady revenue. Investors expected a much higher return during the pandemic years. AirDNA reported a consecutive 8 month YoY occupancy decline for US short term rentals.

While demand remains strong, nights stayed and future nights booked are actually up 21.3% and 15.8% respectively since last year, the supply is increasing at a much higher rate. In October 2022 alone, 66,000 new short term listings were added to the pool of existing rentals. This increase is 41% higher than the growth seen last October! The increased supply, 41% higher growth than last October, may be due to sellers opting  to wait and list at the right time. We could see short-term rentals convert into more long-term rentals, especially as local governments tighten up short-term rental rules. This would increase the affordability of long-term rentals. Read more here and here.

🔎 Mortgage demand continues to plunge as interest rates rise: 

The average interest rate for a 30 year fixed rate mortgage is 6.58% as of January 4, 2023. For comparison, the end of 2021 had an average interest rate of 3.33%. Curious on impact? For a $300K loan, the monthly payment jumps from $1,319 to $1,912. It’s no surprise that mortgage applications are down 13.2% from 2 weeks prior. Read more here.

🍔 Rents fall .8% MoM with end of 2022 showing largest drop in 5 years: Rents have decreased for the fourth consecutive month as of December 2022, despite prices being up 4% YoY. 

A decrease in rent during this time of the year aligns with prior years’ trends but we haven’t seen this .8% to 1% decline MoM historically.  Read more here.