As people feel more open to travel, take a look at the short term rental market analysis and trends that you should watch out for in 2023.
Table of Contents
- US Travel Trends and Sentiments
- 5 Short Term Rental Market Trends in 2022 and 2023
- 5 Best Short Term Rental Markets in 2022 and 2023
- Housing Market Trends in 2022 and Forecast for 2023
- Keep Tabs on the US Short Term Rental Market with Mashvisor’s Analysis
There is no doubt that short term rentals play a significant role in the travel industry. Before the pandemic started, experts predicted the short term rental market to reach $115 billion in size, according to Skift Research back in 2019. Of course, these forecasts and predictions did not foresee COVID-19 disrupting everything, especially travel.
But after two years, Americans, as well as the rest of the world, are ready for things to go back to normal. In the US, more individuals are getting vaccinated, cities and states are easing restrictions, and the Biden administration reopened the country’s borders to foreign tourists.
So how have short term rentals performed so far in 2022? And what does the market have in store for us in the next year?
In this article, you will learn:
- How the current trends and sentiments toward travel show a sustained demand for short term rentals;
- What types of locations to search for potential Airbnb properties that will guarantee huge returns;
- What you can expect from the housing market for the next 12 months as you find your next investment property; and,
- How Mashvisor can help you perform a quick, efficient, and accurate rental analysis.
Let’s dive in.
US Travel Trends and Sentiments
As part of our short term rental market analysis, we need to look at what travel has looked like in the US so far.
What US Travel Was Like at the Beginning of 2022
Around February of this year, the overall American travel sentiment had already recovered since the COVID-19 Omicron variant disrupted the industry. According to Destination Analysts:
- 41.9% of Americans felt optimistic about the course of the pandemic over the next month;
- 81.5% were in a ready-to-travel state of mind, among the highest levels since the pandemic started;
- Almost 77% were excited to travel in the next 12 months and expressed a greater likelihood of attending large gatherings like conventions in the near future;
- 92% anticipated taking around three leisure trips this year, the highest reported figure in 14 months; and,
- The number of people who thought it was safe to go on a ski and snowboarding trip doubled from last season.
As more Americans started to have a positive mindset towards travel, they started to make plans.
- Nearly two-thirds of the respondents were highly excited about traveling with their families;
- Over 70% were going to prioritize spending time with their loved ones, though more travelers looked forward to having fun and relaxing;
- Food, visiting historical attractions, and shopping were some of the top activities they wanted to do; and,
- New York, Florida, Las Vegas, and California were the top destinations for 2022.
As for foreign travelers, interest in international travel rose in some countries while remaining stagnant in others. In 2021, North America saw a 17% increase in international tourist arrivals compared to the previous year. Because of easing mobility restrictions, rising vaccination rates, and traveler confidence in many countries, the US has been welcomeing even more business and leisure travelers this year.
What US Travel Is Like Halfway Through 2022
Now that we are in the second half of the year, American travelers’ worries are shifting from COVID-19 to financial concerns, air travel woes, and service staffing shortages.
According to Destination Analysts’ latest survey, Americans didn’t travel as much due to high fuel prices, expensive airfare, and personal financial reasons, among others. Only 28% of respondents felt that now is a good time to spend money on travel. Their optimism about the financial future has somewhat dimmed as well, with only 39% of travelers feeling that they’d be better off financially next year.
Despite this major concern, over half of the respondents took at least one trip in the last month. A majority of them were satisfied with their trip, specifically the value they received from spending on it. And almost half say that they expect to travel the same amount next year.
Even though demand for travel has waned compared to the beginning of 2022, there are still positive signs that Americans will keep traveling. So what does this mean for the short term rental market?
5 Short Term Rental Market Trends in 2022 and 2023
At the end of last year, short term rental booking platform Airbnb released a report on travel and living. It found that the societal effects of the COVID-19 pandemic have blurred the lines between travel and living.
Instead of going on trips during the weekend or holidays, people have been traveling and booking short term rentals anytime. And instead of visiting the same places they used to frequent, they are going to destinations they have never been to.
Also, because many companies continue to adopt a remote working arrangement, these workers book a short term rental home for at least one month and work from there.
How Travelers Were Using Short Term Rentals at the Beginning of 2022
These findings were based on data from Airbnb before the Omicron variant surge, which temporarily disrupted travel.
1. More People Are Booking Short Term Rentals in Natural Settings
Before the pandemic, 13% of short term rental bookings were in mountainous regions, 34% were in coastal areas, and 10% were in rural places. But in the summer of 2021, bookings in the said areas increased to 18%, 42%, and 22%, respectively. According to Mashvisor’s analysis, the top-performing short term rental markets were in these locations. You can find a list of these markets in the next section.
2. Airbnb Demand Is Shifting Away From the Big Cities to Smaller Short Term Rental Markets
According to Airbnb, the most common type of travel, especially in the summer, had been one or two people visiting a big city. Last year, however, families from the big cities traveled to smaller destinations and booked short term rentals in the area. This preference is bound to continue as Mashvisor’s top-performing markets remain to be small towns, villages, and unincorporated communities.
3. More Travelers Want to See the Great Outdoors
In Airbnb’s travel and living report, the most popular summer destinations last year also served as access points to natural features. This trend is confirmed by Mashvisor: the most profitable markets for short term rentals are all in proximity to national parks and other outdoor destinations.
4. Travelers Are Booking Longer Stays
The Airbnb platform saw trips lengthening overall, with bookings that go for 28 days or longer making up a growing share. The average number of nights per short term rental booking extended from 3.5 in 2019 to more than 4 in 2021. It is expected to continue in 2022 as companies allow their employees to work from anywhere. Those who have been living nomadically but had to stay in one place during the pandemic will return to their lifestyle if they have not done so already.
5. Big Cities Are Welcoming Travelers Who Are Staying for Longer
It is no secret that many of the biggest cities in the US are also some of the most expensive places to live in, with their sky-high property prices and rent. Even though fewer people than before are booking short term rentals in urban areas, the ones who tend to have the flexibility to travel and live anywhere. Thus, they have been booking for 28 days or longer in big cities like New York, Seattle, and Los Angeles.
Investors adopting a short term rental strategy in big cities can maximize their profit by optimizing their property to accommodate these types of travelers. It means fully equipping the kitchen, adding a dedicated workspace, and even making the space pet-friendly.
Mid-2022 Short Term Rental Trends Update
Fortunately, despite travelers’ financial concerns caused by record-high inflation and the growing risk of recession, short term rentals have grown compared to the previous year. According to Mashvisor’s short term rental market analysis in August 2022 vs. November 2021:
- The number of Airbnb listings grew from 370,008 to over 525,609;
- The average short term rental occupancy rate stayed above 50% (59% in Nov 2021 vs. 55% in Aug 2022);
- The average daily rate increased from $196 to $201;
- The monthly short term rental income went up from $2,235 to $3,337; and,
- The short term rental cash on cash return remained stable above 3% across all US cities (4.19% in Nov 2021 vs. 3.76% in Aug 2022).
Now that you know that people are still traveling and booking short term rentals, where should you invest?
5 Best Short Term Rental Markets in 2022 and 2023
Based on the trends we discussed in the previous section, what are the best short term rental markets to invest in this year? Here is a list of the top five rental markets for Airbnb based on Mashvisor’s latest short term rental market analysis.
1. Broad Run VA
- Short Term Rental Income: $7,584
- Short Term Rental Cash on Cash Return: 9.86%
- Short Term Rental Cap Rate: 10.00%
- Short Term Rental Daily Rate: $306
- Short Term Rental Occupancy Rate: 60%
- Median Property Price: $935,167
- Average Price per Square Foot: $196
- Days on Market: 53
- Walk Score: 3
- Notable In-Town and Nearby Attractions: Bull Run Mountains Natural Area Preserve, Pearmund Cellars winery, ruins of Chapman/Beverley Mill
2. Molalla OR
- Short Term Rental Rental Income: $5,760
- Short Term Rental Cash on Cash Return: 9.69%
- Short Term Rental Cap Rate: 9.87%
- Short Term Rental Daily Rate: $148
- Short Term Rental Occupancy Rate: 63%
- Median Property Price: $616,986
- Average Price per Square Foot: $330
- Days on Market: 33
- Walk Score: 72
- Notable In-Town and Nearby Attractions: Molalla River Recreation Corridor, Molalla Buckeroo, and Dibble House Historic Museum
3. Taneytown MD
- Short Term Rental Rental Income: $5,163
- Short Term Rental Cash on Cash Return: 9.60%
- Short Term Rental Cap Rate: 9.81%
- Short Term Rental Daily Rate: $220
- Short Term Rental Occupancy Rate: 56%
- Median Property Price: $362,450
- Average Price per Square Foot: $204
- Days on Market: 19
- Walk Score: 48
- Notable In-Town and Nearby Attractions: Taneytown History Museum, Gettysburg PA, and Washington DC
4. Kimball MN
- Short Term Rental Rental Income: $5,413
- Short Term Rental Cash on Cash Return: 9.57%
- Short Term Rental Cap Rate: 9.76%
- Short Term Rental Daily Rate: $247
- Short Term Rental Occupancy Rate: 54%
- Median Property Price: $392,278
- Average Price per Square Foot: $170
- Days on Market: 62
- Walk Score: 23
- Notable In-Town and Nearby Attractions: Millner Heritage Vineyard & Winery, Powder Ridge ski resort
5. Port Barrington IL
- Short Term Rental Rental Income: $3,955
- Short Term Rental Cash on Cash Return: 9.47%
- Short Term Rental Cap Rate: 9.75%
- Short Term Rental Daily Rate: $419
- Short Term Rental Occupancy Rate: 51%
- Median Property Price: $384,700
- Average Price per Square Foot: $157
- Days on Market: 29
- Walk Score: 10
- Notable In-Town and Nearby Attractions: Lake County Forest Preserve, Moraine Hills State Park, The Broken Oar Marina Bar and Grill
To start looking for and analyzing the best investment properties in the markets mentioned above or in other areas of your choice, click here.
Disclaimer: When creating this list, we did not consider the current short term rental regulations in these municipalities. We thus encourage you to contact the appropriate local government and HOA to verify their regulations for short term rentals.
We based the top short term rental markets on cash on cash return and cap rate. The first metric is important because it calculates your potential cash returns on the cash you spent toward the property (i.e., full payment when buying or mortgage payments). The higher the cash on cash return, the more profit you are likely to make.
Meanwhile, the cap rate also calculates the rate of return of an investment property as well as the time horizon and the level of risk involved. While a higher cap rate means higher returns, it also implies it will take a longer time to recover your investment and might involve more risk. Because of this, we only included cities with average Airbnb cap rates that don’t go over 10%.
Related: What is a Good Cash on Cash Return?
Housing Market Trends in 2022 and Forecast for 2023
The short term rental market trends mentioned in this blog post are likely to be more beneficial to investors who already have Airbnb properties. If this will be your first time investing in a short-term rental, is it still possible to cash in? Or are you already too late? To answer this question, we need to look at the housing market trends in 2022 and forecast for 2023 and confirm them with Mashvisor’s real estate market analysis.
Mortgage Rates Smashed Expectations, Now Above 5%
In February of this year, we predicted that while mortgage rates will increase, they will stay at an average of 3.50%. Oh, how wrong we were. As of August 19th, the national average 30-year fixed mortgage rate was 5.68%. And that’s a 12 basis-point increase from the previous week.
The sharp rise in mortgage rates caused the housing market to start cooling down and the economy to start slowing down. Even though reality smashed expert forecasts, many believe that the trend will change directions. The Federal Reserve has been trying to get inflation under control by increasing the federal funds rate for the second time this year.
If that doesn’t happen, however, experts think that the mortgage rates will reach at least 6.7% by 2023.
What This Means for Real Estate Investors
While the rates today are much higher than predicted, investors who wish to buy a new property will still be able to get solid cash on cash returns. Just make sure that you have good financial health so you can get the lowest possible interest rates. And if you can afford to pay with cash, do that instead.
Lastly, conducting a housing market analysis to determine the potential profitability of the property before you commit to buying it will help.
Home Sales Are Down, Which Will Slow Down Home Price Growth
Usually, spring and summer are active seasons for home buying, but the National Association of Realtors reports that sales have been down for six months this year already. According to Trading Economics, existing home sales in the US declined by 5.9% in July 2022. The performance of this particular month reflected the impact of mortgage rates reaching 6% in June.
As mortgage rates rise, demand lowers, causing home sellers to either lower their properties’ prices or pause their selling altogether. This phenomenon has given an additional boost to homebuyers’ bargaining powers. The bidding wars we saw in 2021 were replaced by canceled contracts.
In July alone, 16.1% of homes that went under contract that month fell through because of numerous reasons, primarily due to the rising mortgage rates. As mortgage rates stay above 5%, monthly mortgage payments increased 40% year-over-year, pricing out many homebuyers.
This, in turn, caused the decline in competition among homebuyers, giving those who are still in the market the time to find the best available option and more leverage to get a better deal. They are once again including contingencies in their offers, which allow them to back out of a contract without penalty.
Outlook for 2023
While experts have not yet made any sales forecast for 2023, they believe that the sales trend that’s going on now will result in home price growth slowing down. Zillow revised its forecast that home prices will increase by 2.4% by July 2023, instead of the 17.8% prediction they gave at the beginning of the year. That means a $500,000 home is expected to appreciate by only $12,000 by next year instead of $89,000.
The reason for experts’ souring outlook is the July sales performance, which gave signs of the housing market weakening. That month alone saw the largest increase in inventory since 2016. Sales for both new and existing homes were down year-over-year. To top it off, single-family housing starts and mortgage rates applications fell off as well.
What This Means for Real Estate Investors
This trend is good news for investors looking for a new investment property. As the buyer in this sales transaction, you don’t have to worry about getting into a bidding war. You will also be able to inspect each home thoroughly before closing, avoiding costly surprises come renovation time.
Keep Tabs on the US Short Term Rental Market With Mashvisor’s Analysis
2023 is likely to be another exciting year for property investors who currently own or are planning to buy a short term rental home. Airbnb properties that are in natural settings will get more bookings from big groups, while those in the urban areas will host remote workers who will stay there for at least a week. Even though buying a new house would be more expensive now, you will still enjoy high returns as demand for travel bounces back.
But just like most trends, these short term rental market trends may change depending on multiple factors that we do not have control over. So, instead of waiting for experts to dictate what’s hot and what’s not, you can rely on your own short term rental market analysis with the help of Mashvisor. Our platform has been helping real estate investors find lucrative Airbnb properties in the US with just a few clicks.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.