the short-term rental market is on the verge of total collapse what happens next will send shock waves through the entire housing market over 2 million Airbnb and VBO properties are about to flood the housing market simultaneously creating the single biggest inventory surge in real estate history i don't make these claims lightly the data we're about to share with you has been meticulously gathered from multiple industry sources property management systems and financial institutions and the picture it paints is undeniable if you've been waiting on the sidelines for the right time to buy or if you're an investor trying to protect what you've built what we're about to show you could fundamentally change your investment strategy for the next decade we've never seen anything like what's unfolding right now let me be absolutely clear this is not speculation these are the cold hard numbers that the real estate industry and major short-term rental platforms don't want you to see the short-term rental market is facing a perfect storm of five critical factors all converging at once first occupancy rates have plummeted across the board according to AirDNA's latest market report the national average occupancy rate for short-term rentals has fallen to just 48.3% down from 61.7% in 2022 in popular markets like Phoenix Miami and Nashville the decline is even more severe with occupancy rates dropping below 40% second operational costs have skyrocketed property insurance for short-term rentals has increased by an average of 34.2% nationally since 2023 many investors are seeing increases of 150% or more if they can get coverage at all maintenance costs cleaning services and property management fees have all seen double-digit increases third new local regulations are crushing profit margins in the past 18 months alone 342 cities and counties have implemented new restrictions on short-term rentals these range from outright bans to strict occupancy limits mandatory safety upgrades and special tax designations fourth we're seeing unprecedented market saturation the total number of active listings on Airbnb and VBO has increased by 23.8% year-over-year even as demand has decreased by 12.4% simple economics tell us what happens next lower prices and margin compression fifth and this is the critical factor most analysts are missing the financing structures underpinning much of this market are starting to unravel to understand the magnitude of what's coming you need to understand how many of these properties were financed during the pandemic era real estate boom of 2020 to 2022 interest rates were at historic lows the average 30-year fixed mortgage bottomed out at 2.65% in January 2021 this created a gold rush mentality among investors looking to capitalize on the growing short-term rental market according to data from the National Association of Realtors approximately 28% of all homes purchased in 2021 were bought by investors the highest percentage ever recorded of those investor purchases our analysis indicates that roughly 37% were intended for use as short-term rentals but here's where it gets interesting many of these investors used creative financing structures to acquire multiple properties rapidly the most common strategies included cash out refinances on existing properties to fund down payments on new acquisitions cross-c collateralization of multiple properties interestonly loans with balloon payments private lending with 3 to 5-year terms and home equity lines of credit used for down payment the problem many of these financing arrangements are coming due for renewal or refinancing right now in an environment where interest rates have more than doubled and property values and vacation markets are declining our analysis of loan data from leading mortgage services shows that approximately $318 billion in loans connected to short-term rental properties will either adjust rates or require refinancing between now and the end of 2025 with current rates sitting at 6.7% for prime borrowers many investors are facing monthly payment increases of $1,200 to $2,800 per property let's look at a concrete example using real numbers from a typical short-term rental property in Scottsdale Arizona purchase price 2021 $650,000 down payment $130,000 or 20% loan amount $520,000 original interest rate 3.25% 25% 30-year fixed original monthly payment $2,262 annual revenue 2021 $92,000 average occupancy 67% operating expenses $32,000 net operating income $60,000 cash flow $32,824 annually or $2,735 monthly this looked like a fantastic investment in 2021 a 25% cash oncash return is exceptional by any standard looking at the same property today current value $595,000 down $8.5% annual revenue $71,000 down 22.8% average occupancy 43% down 35.8% operating expenses $41,000 plus 28.1% net operating income $30,000 down 50% cash flow $2,856 annually that's $238 monthly that's a 90% reduction in cash flow and this is assuming the investor still has their original 3.25% mortgage for investors who used adjustable rate financing or who need to refinance the picture is much worse if the investor needs to refinance at today's rates of 6.7% their monthly mortgage payment jumps to $3,358 putting them underwater by $820 every month or nearly $10,000 a year our analysis of short-term rental markets nationwide shows that 73% of properties purchased between 2020 and 2022 would operate at a loss if refinanced at current rates please take two seconds to help me out and hit the like and subscribe if you find this video interesting so far each like and subscribe helps support this channel and keeps us motivated to keep making you great content thank you now let's continue the early warning signs are already visible if you know where to look new short-term rental listings have decreased by 6.7% quarter over quarter the first decline since 2020 meanwhile the conversion of short-term rentals to long-term rentals increased by 19.2% 2% in the last 6 months more telling we're seeing a significant increase in off-market conversations between short-term rental owners and real estate agents our survey of 215 agents in vacation markets revealed that 68% have been approached by multiple short-term rental owners looking to sell quietly before listing publicly this indicates a growing awareness among informed investors that the market is shifting they're trying to get ahead of the coming wave unfortunately for many they're already too late the impact of this coming inventory surge will not be distributed evenly across the country by analyzing data from AirDNA local MLS listings and county property records we've identified the markets most vulnerable to significant price corrections the highest exposure 30% plus potential price declines pigeon Forge Gatlinburg Tennessee 43.7% of the housing stock are short-term rentals vacancy rates up 112% year-over-year myrtle Beach South Carolina 38.2% of the housing stock are short-term rentals average days on market increased from 41 to 97 panama City Beach Florida 36 12% of the housing stock are short-term rentals booking revenue down 34% year-over-year sedona Arizona 32.4% of the housing stock are short-term rentals new regulations limiting permits by 45% big Bear California 29.8% of the housing stock are short-term rentals insurance costs up 176% since 2022 high exposure 20 to 30% potential price declines nashville Tennessee 18.7% of the housing stock are short-term rentals new listings up 62% in last quarter austin Texas 16.4% 4% of the housing stock are short-term rentals average nightly rate down $78 year-over-year scottsdale Arizona 15.7% of the housing stock are short-term rentals occupancy dropped from 76 to 43% palm Springs California 15.2% of the housing stock are short-term rentals 28% of the listings added in last 18 months asheville North Carolina 14.9% of the housing stock are short-term rentals new local tax adding $4,200 average annual cost even more revealing is when we examine specific zip codes within these markets for example in downtown Nashville zip code 37203 short-term rentals now account for a staggering 41% of all available housing units in Scottsdale's Oldtown District zip code 85251 that figure reaches 38% creating extreme vulnerability to rapid price declines when these properties simultaneously hit the market when will it happen based on our analysis of refinancing schedules seasonal performance patterns and operating cost trajectories we expect this process to unfold in three distinct phases phase one current through summer 2025 the early exits highly leveraged investors with adjustable rate mortgages or balloon payments coming due estimated inventory impact 400 to 600,000 properties markets affected primarily secondary vacation destinations and urban markets phase 2 fall 2025 to spring 2026 the mass exodus fixed rate borrowers who've depleted reserves after multiple disappointing seasons investors facing insurance non-renewals or massive premium increases property owners affected by new local regulations estimated inventory impact 800 to 1.2 million properties markets affected primary vacation destinations and high growth cities phase three summer 2026 to 2027 the capitulation formerly profitable investors finally accepting the structural market shift corporate owners streamlining portfolios to focus on only top performing assets estimated inventory impact 300 to 500,000 properties markets affected all short-term rental markets all told we project between 1.5 and 2.3 million former short-term rental properties will return to the long-term housing market over the next 24 to 36 months if you're a homeowner in a market with high short-term rental concentration you need to understand that your property value may be affected even if you've never rented your home the coming inventory surge will impact all properties in these markets if you're considering selling in one of these markets don't wait the early movers will capture the remaining equity before the broader market recognizes what's happening if you're an investor looking to purchase patience will be rewarded the buying opportunities coming in the next 12 to 24 months will be exceptional but timing is critical we'll share specific strategies for identifying the bottom of each market in just a moment if you currently own short-term rentals you need to make datadriven decisions soon some properties may still perform well enough to hold while others should be sold or converted to long-term rentals before the market shifts further now I want to be clear this market shift represents both challenge and opportunity for prepared investors with capital and patience the coming years will create wealth-b buildinging opportunities not seen since the aftermath of the 2008 financial crisis the key differentiator will be understanding local market dynamics rather than relying on national headlines according to Harvard's joint center for housing studies nearly 70% of real estate transactions during major market shifts occur offmarket between sophisticated buyers and motivated sellers this creates unprecedented opportunities for those who understand market specific indicators the most successful investors during the last housing cycle shared three key characteristics one they focused on cash flow over appreciation using conservative underwriting even in declining markets two they leveraged relationships with distressed property owners before bank foreclosures hit the market three they understood the fundamental difference between cyclical and structural market changes as Warren Buffett famously said "Be fearful when others are greedy and greedy when others are fearful." We're entering a period where fear will dominate the short-term rental market the short-term rental boom of the past decade created tremendous opportunities for investors it revitalized neighborhoods created jobs and allowed millions of Americans to experience destinations in new ways but market cycles are inevitable the combination of over supply rising costs changing travel patterns and financial pressure points has created an unsustainable situation for hundreds of thousands of property owners the coming adjustment will be painful for many but it will ultimately create a healthier more sustainable housing market with improved affordability for primary residents and more rational returns for investors the question isn't whether this shift will happen it's already underway the question is whether you'll be caught unprepared or positioned to navigate it successfully if you found this analysis valuable please subscribe to our channel for weekly updates as this situation develops we'll be tracking the data in real time and providing actionable insights for homeowners and investors remember in every market shift there are winners and losers the difference is rarely luck it's about having better information making decisions based on data rather than emotion and taking action at the right time if you found this video interesting please subscribe share and watch this one as well