Airbnb owners are facing severe revenue problems. That could be the solution to the housing market supply shortage.

New home sales figures only tell part of the story.

On the surface, the combination of rising mortgage rates and recession fears would seem to be enough to douse a red-hot housing market. And to some extent, it has. New home prices have fallen roughly 16% since their October peak.

In response, home builders have been offering aggressive mortgage-rate buydowns to lure buyers away from the resale market.

That strategy appears to be working. May builder sales increased 20% YoY, rising above pre-pandemic levels.

Chart showing historical new home sales data
Source: Reventure Consulting CEO Nick Gerli on Twitter

Those numbers are deceptive, however.

Even with that growth, home builder sales still represent only about 15% of the overall housing market. The remainder comes from resales.

According to Reventure Consulting CEO, Nick Gerli, total home sales (builder + existing) are still well below pre-pandemic levels. Gerli estimates that prices will need to fall about 15% more before buyers return to the market.

Will prices fall that much?

This is where things get complicated. Mortgage rates have nearly doubled over the last year and a half, and new home buyers are still largely priced out of the market.

Therefore, from a demand perspective, it seems reasonable that prices will fall. If people want to sell their homes, they’ll need to lower prices to a point where buyers can afford a monthly payment on a 6%-7% mortgage. This is in addition to household budgets already getting squeezed by inflation.


…we also need to consider the supply side.

There simply isn’t enough housing available to create a buyers’ market.

The chart below is from Bill McBride. It shows the year-over-year change in existing inventory and the months of supply available:

Chart showing existing home year-over-year inventory. It illustrates the shortage in the housing market supply.
Source: CalculatedRisk Newsletter by Bill McBride

In May, the months of supply (red line) increased to 3.0 months compared to 2.9 months in April. Historically, however, prices haven’t declined until inventory reached 6 months of supply, according to McBride.

It therefore seems like we’re still a ways off from falling home prices.


…a new variable may come into play and increase supply.

Will Airbnb owners flood the housing market with supply?

In the U.S., there are roughly 1 million Airbnb/Vrbo rentals. That’s almost double the number of homes that are for sale (570,000), according to Gerli.

Chart showing how Airbnb/VRBO inventory far surpasses the number of homes for sale. If Airbnb/VRBO owners sell, it could greatly increase housing market supply.
Source: Reventure Consulting

Why does this matter?

Because Airbnb revenues are down nearly 50% in major cities like Phoenix and Austin.

If struggling Airbnb owners decide to cut their losses and sell, they could flood the housing market with inventory and consequently drive prices down.

Table showing the percent drop in Airbnb revenue across multiple cities.
Source: Nick Gerli on Twitter

Even if Airbnb owners decide to convert their property to long-term rentals, we could still see a flooded market. Gerli offers this helpful analysis:

Some Airbnb owners might elect to do a long-term rental in their properties instead. But the problem with that is that there has already been a huge surge in long-term rentals hitting the market with vacant rentals in cities like Nashville exploding over the last year.

Chart showing the surging number of vacant rents in Nashville.
Source: Nick Gerli on Twitter

It’s impossible to know what Airbnb owners will do if their revenues continue to collapse. It seems likely, however, that we’ll see an increase in the number of homes for sale and/or rent. That would provide some relief to a very tight housing market, which could in turn drive prices lower.

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