At what point does Gatlinburg reach peak?

Question

I hate to use the term "bubble", but it seems the RE prices in the Gatlinburg market have gone parabolic. It appears that the income yields still support the prices, but what is the saturation point? For example, there is no way I would predict that 2022 will outperform 2021. Kids will be back in school, workers will be back at the office, etc. It won't be a year-round flex schedule. I think that affects rents, and should push down corresponding ask and sale prices.

Another factor is new home starts in the area. When does new construction catch up to demand?

Just curious the thoughts out there.

Another factor is new home starts in the area.  When does new construction catch up to demand?

Just curious the thoughts out there.

Avery Carl · Answer

I agree with @John Underwood that working from home will be even more commonplace than it was before.

That being said, I advise my clients to run their numbers based on 2019 rental numbers to be safe, because that was a “normal” year.

John Underwood · Answer

I think working from home has been forever changed and will be much more common. People will still be reluctant to travel internationally or even fly domestic for at least a while. I have a bunch of travel related stocks that I am seeing good gains in and expect a huge surge when America does get back to flying and cruising.

There are more and more Baby boomers that are waiting to get back to travel and vacation destinations.

People are still seeing safety in traveling to vacation rentals where they can be away from masses of people and still have fun stuff to do.

I am looking to buy a new construction pool cabin in the Gatlinburg PF Area as soon as we can find what we are looking for.

Then we will be looking for a Hilton Head, or close by, beach house.

That way I can go to the lake, mountains or beach in between managing my realestate empire and house flips.

Ken Boone · Answer

I had a similar conversation with my builder to which he told me he had a conversation with my finance loan guy up there who told him he did not think it was going to stop this time until there was no dirt left to build on.  I tend to think a cyclical correction will have to happen at some point whether local or global but I am also aware of more institutional investors joining the market buying new cabins in bulk and paying full price.  This kind of activity will definitely keep the numbers moving up until it no longer makes sense for folks who want a large return.  These guys are happy to pay all kinds of money put the cabins with a management company and only make 10% on their investment.  As far as they are concerned it is just another investment vehicle which on average should beat the stock market, whereas, at least I think that most of us manage these cabins yourself kind of people are looking for more like a 30% return on their investment for the effort we are putting in.

As far as the rental market I think we see a number of things that have changed.  I have experienced several guests who come to the area regularly who have never stayed in a cabin but rather always booked a hotel.  The response was wow they didn't know what they were missing with all the amenities in the cabins and said they will be back and will always rent a cabin.  So from that perspective we are seeing more demand shifting from hotels to cabins.  Also, it is my understanding we are still seeing a lot of growth in 1st time users of AirBnb and VRBO.  This too seems to push the demand up over the demand for hotels.

So I guess my outlook is this.. at this point you can still find cabins that will cash flow very well even at these price points, however as the price keeps going up it will be less and less attractive.  As far as rents changing.. I don't think that will happen anytime soon other than the upward trend we have been seeing.  The demand will be there and the demand is growing.

I am definitely no expert but that is how I am thinking at this point.

Luke Carl · Answer

When people stop showing up. So. Never.

My price per night is through the roof. Price per night goes up..... purchase price goes up and vide versa.

In a 2 bedroom I used to hope fo $200 per night at Christmas. Now I get $200 on a Tuesday in March.

Collin Hays · Answer

Eventually, supply meets and exceeds demand, and then everyone’s looking at each other with their 10 mortgages on homes that are suddenly worth half what they were a year ago, saying “but I thought it was different this time?”

Nope.  Just the imminent cycle of expansion and contraction.  A fresh new batch of investors is bankrupt, banks sell the properties, and things hit bottom for a while.  Count on it.

Nancy Bachety · Answer

Gatlinburg, PF and Wears Valley are like Disney World in the mountains. And there’s plenty of empty land for new builds. The visitors just keep coming and coming, and the cycle continues. Airbnb was doomed in March and April but look at it today, gone public and stock prices rising.

I like the oceans and bays myself and only want to visit Disney World occasionally.

Lynnette E. · Answer

I just went there mid week.  Had LOTS of places to choose from and paid $94 a night for 3 nights.  I think with the number of places I had to choose from, there is a lot of existing capacity for the demand.

Collin Hays · Answer

“Reasonable” and “insane market” are two highly subjective terms.

I own a 2 bedroom cabin in Gatlinburg that produces $70K a year in rents.  At what price is it “reasonable” for me to give up that income?   $600K?  $700? 800? 900? $1 million?

No, no, no, no, and no.

Mike S · Answer

LOL, I hear you. I'm looking at 5 to 700k for 2 and 3 bedroom cabins thinking "That's reasonable". Idk, takes money to make money.

Mark Reitman · Answer

@Mike S In that insane market, maybe it would  ¯\_(ツ)_/¯

At what point does Gatlinburg reach peak?

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