Episode: Airbnb owners are about to SELL (Massive Housing Crash Coming) - 06-23-2023

A massive airbnb liquidation is about to hit the US. Housing market where we see hundreds and thousands of airbnb owners be forced to sell their property, with the central issue for these airbnb owners being something that's called airbnb bust. The new trend where the revenue and profits for airbnbs are collapsing, with the average airbnb owner in America earning 21% less revenue this year compared to last year, with those declines reaching as high as 50% in certain cities. Situation that's going to cause a flood of inventory onto the housing market is we're in a very interesting situation right now in America where the number of rentals on airbnb and verbo totals nearly 1 million, according to data from all the rooms. That's 65% higher than the number of homes for sale, according to Realtor.com.

Now that graph probably looks discouraging to a lot of you homebuyers out there to see that so many of the houses that you could have bought over the last couple of years ended up as an airbnb. However, we're going to see the reverse of that trend occur into the future now that airbnb bust is here and the revenues are going down. And ultimately I think this situation could be as bad as the subprime crisis in 2008 for some of these cities because people don't understand just how much shadow inventory is lurking in these housing markets from all the listings on airbnb. I mean, let's just take a look at Phoenix, for example. In Phoenix, the airbnb revenue per owner has absolutely collapsed from its levels in 2021 and 2022, down to only 1700 per month.

That's down 50% from where it was just a year ago. And what's scary about that is that the revenues in Phoenix are down 50%, while the supply of airbnb has nearly doubled in just the last 15 months. So you had all of these people in Phoenix and so many other cities in America over the last two years who said to themselves, hey, it would be fun to own an airbnb. So they bought a property on airbnb or they decided to list their house on airbnb instead of selling it. The result was that the yellow line, the airbnb supply, went from around 9000 in late 2021 to 18,000 today.

At the same time, the blue line, the for sale inventory in Phoenix, has crashed back down to historically low levels. But now we're going to see the reverse occur. This airbnb supply is going to crash down, causing this for sale inventory to go back up, especially because lots of these airbnb owners used subprime loans to purchase their airbnb over the last couple of years. These airbnb owners use something called DSCR loan to buy their properties in many cases. And what a DSCR loan is, it's a loan that they can get from a subprime lender where they don't need to provide proof of their personal income.

Often they don't need a good credit score to get a DSCR loan is the loan is based on the income levels from the property. So long as the income levels are good, there's no issue. But if the income goes down because revenues collapse by 50%, then you have a big problem. You can see this is actually something that Bloomberg wrote about one year ago. They wrote an article talking about how Americans are building vacation home empires with easy money loans.

And this article talked about a woman named Brenna Carls based out of the Great Smoky Mountains who is making $100,000 a month by being a mortgage broker specializing in loans for vacation homes in eastern Tennessee. And one of her clients was a 29 year old former grocery store manager in Columbus who bought four rentals in the Smokies in East Tennessee. She borrowed over $1 million in these DSCR loans to purchase the properties which have a typical monthly mortgage payment of 2600 a month. Now all that debt and those high mortgage payments to buy the vacation rentals wasn't a big deal a year ago because the revenues were still good. However, now in a place like East Tennessee, the revenues have absolutely crashed, especially in Severeville, where the revenues are down 48% year over year.

In Asheville and North Carolina, they're down 43% year over year. You can see that even in Nashville the airbnb revenues are down 39% year over year. And so this is a freight train that's coming for certain housing markets in America. This is no joke. And I'm going to show you guys later in this video the cities that are going to get hit hardest.

Here where the airbnb bust is worst and where we're going to see the most forced selling and the biggest home price declines as a result. But first I want to actually properly set your expectations about what to expect from this airbnb bus because it's not going to happen everywhere across America and it's not going to happen everywhere across a given city. If we take a look at this heat map in Phoenix, which shows where the airbnbs are, what do you notice is that the airbnbs are very concentrated in specific areas of Maricopa County and Phoenix. You can see that they're heavily concentrated in downtown Phoenix. They're in Scottsdale, they're in Tempe, they're in Paradise Valley and they're a little bit west towards Peoria and Glendale.

Otherwise, if you zoom out there isn't as huge a concentration in the outlying suburbs and rural areas. So one of the big things you got to understand that in bigger cities airbnb bust is going to be a more urban phenomenon. Airbnbs tend to be located in more densely populated areas because that's where travelers want to stay and so that's where we're going to see the most for selling. We might also see a lot more rentals hit the market as well. Don't be surprised if those vacancy rates for multifamily apartments as well as single family homes continue to increase over the next year as airbnb operators also flood the rental market with inventory.

And what's crazy, folks, is at the same time that we're about to see airbnb bust turn into a deluge of for sale and rental inventory onto the market, we're also seeing home builders in America begin to go crazy again. The May 2023 homebuilding report from the US. Census Bureau just came out and it was a shocking result with Reuters reporting that new US home construction surged by the most in three decades. Brent which you can see on this graph, which tracks the housing starts for single family homes as well as apartments in America, and you see this huge bump in May. Boom.

Housing starts for single family shot back up to nearly 1 million. And then for apartments and multifamily, they shot up to 624,000, which is actually the highest level on record. And so very clearly, the builders and the apartment developers are buying into this idea that somehow we're in recovery in the housing market and that the recession isn't going to be bad or that maybe the recession is over and they're saying, yeah, let's turn the building floodgates back on. But folks, when you look at the fundamental data, there isn't a recovery in the housing market. Mortgage applications to buy a house are still sitting at their lowest level in nearly 30 years.

So folks, show me, where is the recovery here in the housing market that I see everyone talking about? It's certainly not on this graph of mortgage applications to buy a house. It's certainly not on this graph showing the vacancy rate for rentals in a city like Phoenix, which has now surged to its highest level on record according to apartment list. Where is the recovery? Oh, it's imagined because the participants in the housing market are still conditioned by over ten years of government bailouts and Fed stimulus and foreclosure moratoriums.

They're conditioned by all of that to somehow expect that nothing bad can happen. And because of that, people are inventing narratives that things are turning around when they're very clearly not turning around. The only thing that's really in support of a bullish narrative on the housing market is low inventory. But as I showed you earlier in this video, one of the big reasons that inventory was low was because of all those airbnb, all that airbnb and verbo supply hitting the market, which now is likely to go into reverse, pushing more inventory on the market. The other thing to think about here, folks, if you're a home buyer and investor trying to understand where things are going in your city, understand also that the recession has not even really gotten going.

We're in the early stages of the recession, but the unemployment rate is still 3.7% very low. So this downturn in airbnb is happening still with a strong labor market. The inventory is low, still with a strong labor market. What happens when the labor market inevitably worsens. I think when that happens, folks, people aren't going to be able to comprehend how much inventory gets released onto the US.

Housing market in rapid succession. And it's going to be something that leaves just lots of people flabbergasted because they're just stuck looking at low inventory, low inventory, low inventory, not looking over here at the fact that all other manner of inventory for rent on airbnb, long term, that's surging and that's a signal of where the market is heading overall. But folks, I don't want to be too negative here. I actually think that this is going to be an opportunity for a lot of you guys out there, whether you're a home buyer or an investor that's waited and who's been diligent. The airbnb bust and the overall downturn in the market and the recession getting worse is going to create lots and lots of opportunity for a lot of you who have been waiting for a long time.

And I think that opportunity is going to come. Most in the cities I'm about to show you on this list, these are metros that I've filtered that have the most exposure to airbnb bus through a variety of different metrics. And I just want to explain very quickly how I came up with this list. Number one, I wanted to look at markets where the airbnb supply has surged over the last four years, where there's been a 50% plus growth rate in airbnb supply, but that indicates a lot of amateur airbnb operators went into the market and thus they could be the ones to sell first. Number two, these markets all have a high ratio of airbnb supply to homes for sale on the market.

And the higher this ratio is of airbnb supply to homes for sale, the more chance that some of those airbnb make it onto the for sale housing market and push prices down. And of course, number three, these are all markets where the airbnb revenues have absolutely collapsed over the last year, leading to lots of operators who are struggling and losing money and thus more likely to sell. And the first city on this list that I want to talk about is actually my hometown in upstate New York. You zoom in here on Hudson, New York, you can see that the airbnb revenues also on Verboandbooking.com according to all the rooms, is down 37% year over year and it's down by nearly 50% from its levels two years ago. And Hudson, it's this area, this kind of vacation area that a lot of New Yorkers went to during the pandemic in the Hudson Valley.

Well, they pushed up the demand. They bought a lot of airbnb, so many airbnbs that there's now around 900 short term rentals on the market in Hudson and Columbia County, compared to only 220 homes for sale. So there's four times as many airbnbs as there are homes for sale. And another area that's getting hit hard by airbnb bus is not too far away from upstate New York. It's actually New Hampshire, Vermont and Maine.

Gilly portland, Maine, everyone, where the airbnb revenues are down 33%. This is an area that looks scary now because there's 2000 short term rental listings in Cumberland County near Portland compared to only 350 homes for sale, folks. So there's six times as many short term rentals here as there are homes for sale situation, which is likely going to lead to more inventory hitting the market in future months and years. And what we're really seeing in the trends and in the data, everyone, is that there's a very clear reversion occurring from what happened during the Pandemic, right? Like there was these big lockdowns in places like Boston and New York City that caused lots of wealthier people in those cities to flee up to the rural areas throughout the Northeast and they bought homes and they pushed the prices up and they put them on airbnb.

But that's all ending now. More people are moving back to the city. When you look at the data on the best performing airbnb markets over the last year, it's the big cities, it's New York City, it's Washington DC, it's Boston. And so this isn't just some blip or short term trend. This is a reversion back to normal, which is going to be a big problem for all of the boomtown areas during the Pandemic that added the most airbnbs.

One of those boomtown areas that's getting hit very hard right now is the Southeast particularly area flowing from South Carolina, North Carolina to Tennessee. Talked earlier about revenues in Nashville being down 40%, seaverville being down 48%, asheville being down 43%. But if you just keep going to the coast, you can see the losses in the bloodbath continues. In a place like Myrtle Beach, the airbnb revenues are down 45%. And that's a major problem because there's currently 9000 short term rental listings in Orie County in Myrtle Beach compared to only 3000 homes for sale.

I mean, just look at how these lines have flipped basically starting in late 2019 and eventually they're going to start flipping back. But folks, the downturn in these areas pales in comparison to what we're seeing in one of the biggest bubble housing markets in America that I pulled the bubble on two years ago when everyone said this market would keep going up, but no home prices in this market are down. Rents are down, and now airbnb revenues are down because Austin, Texas is just a bloodbath right now with airbnb revenues down 46% in Austin as well as 44% in nearby San Antonio. Clearly not as many people are interested in visiting Central Texas as they were two years ago and it's showing up in this data. But I know what some of you are thinking at this point.

Everyone, you're probably thinking, Nick, all right, this data is great and interesting, but how do you know that these crashes in airbnb revenue are going to translate to owners being forced to sell? Like what if the owners just decide to hold their properties forever because they have a low mortgage rate? Because a lot of people are talking about that. They're saying because all these existing owners have 3% or 4% mortgage rates that there's no incentive to sell. And then even if things go sideways on their rental, whether it be a short term or long term rental, maybe they'll just decide to hold for a couple of years and fund it out of pocket.

And folks, I'm sure some owners will do that. This is not predicting that every Airbnb owner is going to sell. It's merely saying that in markets where there's lots and lots of airbnbs and lots of new supply and a big crash in revenue, it's just very likely that these owners are going to be forced to sell because many of them are losing money. And to prove this point, I actually looked at some numbers on what an Airbnb owner in a city like Austin or a city like Phoenix is facing right now. And I covered this in a post on the Reventure App blog.

I'll have a link to it in the description. You want to check it out. But basically I put together a Phoenix Airbnb Pro forma for short term rentals and figured that if someone operated their rental full time, they'd earn about $3,000 a month in revenue. Now you might be saying, that's great, $36,000 a year in revenue sounds good, except you got to deduct the expenses. Airbnb takes a fee.

There's property taxes, there's insurance, there's maintenance, there's utilities. A lot of people use a property management company which can charge anywhere from ten to 20%. After all that, you're actually left with 16,000 net income for your Airbnb in Phoenix. And if you bought it with a mortgage with 20% down at only a 4% mortgage rate, you'd actually be losing money after paying your mortgage interest at only a 4% rate. This is assuming a low interest rate and they would still be losing money.

And ultimately people can only lose money for so long before they either decide to sell or they're forced to sell from their lender if they got one of those DSCR loans. One area in general where I just think the situation is going to get worse in coming months is the West Coast of America, particularly the Mountain West, where we can see big declines in airbnbs across places like Kalispell, Montana, down 49% in revenue, billings, Montana down 47%. Boise down 38%. Bend and Eugene, Oregon are down around 40%. And then if you zoom in on Arizona, this is where the real bloodbath is.

Lake Havasu City down 49%. Phoenix down 47%, paison down 61%, sholo down 65%. And one rumor that I am hearing out there from people in the short term rental industry that I know, one of which is Sean Rakidich based out of Dallas. He operates a short term rental business and coaches a lot of people on short term rentals. He says that Airbnb's algorithm might be trying to now weed out some of the lower performers in the market.

So if you go on Airbnb and search for a listing, you'll see these initial listings which are super cheap. $59 a night, $53 a night, $43 a night. No wonder this market's crashing. But these listings at the top, they would be the ones from the best hosts or the ones that Airbnb is trying to promote. Whereas on the last page you're going to see more of the struggling owners and operators that are just shoved to the back.

This could be Airbnb's way of seeing this coming and weeding out and basically firing the worst performing airbnb operators and almost like hastening the decline for the airbnb operators who aren't good enough. Now again, here's what's interesting. Not all airbnb markets are crashing in this way. There's some isolated markets that are actually holding up pretty well where the revenues are still going up for certain operators. And by and large these are markets that not a lot of people know about.

They're diamond in the rough areas that really aren't on any top ten list. But if you look at this data, it suggests that maybe, just maybe, they would still be good places to operate in Airbnb. Such market would be Washington, DC. Which I know a lot of you are going to say is crazy because there's all this crime and whatnot all the issues the city is having. However, supply of Airbnbs is down 15% since the pandemic, while the revenue per owner is up by 25% since 2019 and only down by 6% over the last year.

DC is a market that's actually holding pretty strong due to there not being too much supply, as is a market like Louisville, augusta, Georgia, ann Arbor, Michigan, bloomington, Indiana, champaign, Illinois and Trenton, New Jersey. Of course, there's a lot that goes into buying and operating an airbnb beyond the market stats. This is a full fledged business that people have to operate if you own an airbnb. So if you are somebody who is still thinking of getting into it in 2023, even during Airbnb bus, I encourage you to make sure you look at the data from a website like Alltherooms.com who provided the data that I used in this video also.