Could recession + Short Term Rentals = massive offloading?

Question

Hello all, I've been an avid watcher of BP for years now and I've decided to get more involved.

Anywho as I ponder on the current macro trends of our economy I have been thinking if the looming threat of recession could be the final straw that will break the preverbial camels back to real estate prices.

I have heard that the covid shut down really stretched those doing the STR model and wonder if high gas prices + inflation + recession would bring another dry spell in vacancies. This would put pressure to either sell or convert to LTR. If there is a large increase of selling I believe this will greatly increase supply as I have heard the majority of home purchases are second homes.

I havent really seen anyone talk about this so please let me know if I'm on to something or if I should put down the crack pipe.

Kyle

Stetson Miller · Answer

@Peter Davis Curious as to where you're seeing those stats that show the cooling market? Looking at MarketStats for all of Cape Coral, from March to April (May stats not yet available), inventory decreased from 1.6 to 1.4 months, average sold price vs list price remained the same at 100.7%, average price per square foot increased from $163 to $170, and average days on market decreased from 6 down to 5

I think I'm seeing a bit more pushback on the crazy pricing from generally unmotivated sellers as well with seemingly more frequent price reductions, but it's hard to tell if that's just confirmation bias or not. Generally speaking though, it appears those aren't having any impact on the general market conditions and we're actually in a position where we're still seeing the market heat up a bit more from previous levels

Let me know your thoughts!

Peter Davis · Answer

@Pretty Khare

I'm not seeing a big sell off of STR's or LTR's in Cape Coral. Demand continues to outpace supply so we're still very much in the midst of a seller's market. But I am seeing some early signs of a cooling market here: inventory is creeping up (though still under a month), more price reductions, more days on market. Generally I'm seeing more push back from buyers on the crazy high or "make me move" pricing.

David S. · Answer

Depends on the market, right? We were looking to invest in the Cape Coral FL area but opted not to for this exact reason. Knowing discretionary income will be taking a significant hit with all this inflation (which is far from over) we feel markets with a high ratio of STR’s are a risky place to invest right now. I do believe many of those will indeed convert to LTR’s over the next 5 years. I just read that airline bookings are lagging all of a sudden because of higher ticket prices… seems the dynamic is taking hold. I think some of the most affordable markets are the best places to be since loss of wages will naturally drive more demand in low cost of living locales. That and the REITs are less interest rate sensitive and will likely put a floor of sorts under these low cost markets in which they’re buying heavily.

JD Martin · Answer

LoL on the crack pipe. Don't hear that saying much these days - I think it's probably the meth pipe these days.

Most home purchases are primary. Second home purchases are about 5% nationally. So I wouldn't make any decisions not related to STR based on that. Certain markets are going to have higher ratios - those that are primarily vacation destinations or certain very high dollar areas for the very wealthy.

Stetson Miller · Answer

@Peter Davis Thanks, I'll definitely have to start comparing the two. Will certainly be interesting to see what the future holds!

Peter Davis · Answer

@Stetson Miller

I was referring to what I'm seeing now, in May, looking at the MLS Market Watch, I'm seeing more price reductions than I've seen in a while, and to Pretty's specific question on LTR's, I'm seeing the lower range SFR's days on market are up. It will be interesting to see how May (and the summer) plays out.

Peter Davis · Answer

@Kyle O'Connor

You might be on to something Kyle, crack pipe notwithstanding. Anecdotally, a friend and fellow broker of mine here in Cape Coral bought a new construction cabin two years ago in the Georgia mountains to use as an STR. It was booked solid over the last two years during Covid but recently rentals have fallen off a cliff he says. Kids are back in schools, people are back at work, and high gas prices are all playing a huge role in killing his property's profitability. He's now looking to sell the cabin.

Kyle O'Connor · Answer

Well I guess my thought process wasnt too far off. I do know there has been an increase of saturation in STRs in popular areas and I hope new investors and those using the sublet model have put contingencies in place because I believe they will be hit the hardest.

What do you think will happen to the sublet STRs Over a long down turn? Not sure if there are any landlords to these type of renters/units who could chime in?

Could recession + Short Term Rentals = massive offloading?

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