Short-Term Rental Saturation Leads to a Correction – and Lots of Home Sales

25.08.2023 - 13:12 / skift.com / Srividya Kalyanaraman

Garrett County, which houses the Deep Creek Lake in Maryland, has a story to tell about short-term rentals — one with ebbs and flows.

In 2017, personal income growth in the county was 1%. The following year in 2018, home sales in Garrett declined 3.4% andtheir prices slid 8.4%.

And then came 2020 and the pandemic. Home sales in Garrett County jumped nearly 37% in 2020, while average prices rose 26% to $436,946.

The numbers were headier in 2021 — in March, sales in Garrett were up 71%, and average prices rose to $567,688.

The picture today looks more lackluster.

“Following the pandemic, Deep Creek was one of the most profitable areas in the country,” said Tiffany Edwards, a strategic consultant for short term vacation rental organizations. “You had all of D.C. going there, and that’s slowing down after doing extremely well for two-three years,” Edwards said.

After one vacation rental, then came too many, too quickly. The excess supply was led by low interest rates, resulting in a drop in occupancy and a steady increase in the number of available listings. 

“The market prior to 2020 was seeing a steady healthy growth, and then Covid hit, which made the drive-to destinations popular,” said Emir Dukic, founder and CEO of Rabbu, which provides short-term rental data to investors. “First they were shut in, then people started driving, and now they are flying again and that changes the demand curve,” Dukic said.

Garrett County isn’t an exception — several vacation rental markets that saw a post-Covid boom are starting to feel the saturation. Palm Springs, California, saw the number of licensed vacation rental properties grow from 2,316 to 2,881, a nearly 25% increase from January 2022 through the end of April. That sent rental rates plummeting. 

As return projections sober up, investors are plotting their exit. Christopher Ledwidge, executive vice president of TheLender, which sells wholesale mortgages, is one of them. 

“I am selling my short-term rental at Big Bear, California,” he said. “When I bought it in 2020, we had 1,300 STRs permits issued,  and today there are about 2,800. In these short three years, we have more than doubled the number of rental operators,” he said. “Supply went up and demand took a slight hit.” 

“Cities are catching on that these are revenue generators. Water tax, sewer permits have gone up. What pushed me over the edge was that 15% transient occupancy tax,” Ledwidge added.

Regulations, higher taxes and simply higher costs of operating short-term rentals will see a lot of operators exit the market. This in turn presents an opportunity for professionals to come in.

“In the last couple of years you do see an over saturation in some markets and one needs to do more research