U.S. Market Review: January's Arctic Blast Chills Demand

January brought together a series of events that led to a decrease in demand for short-term rentals across the US.  

Cold weather, described by the National Oceanic and Atmospheric Administration as an “Arctic air mass” that brought record low temperatures to much of the country mid-month. This cold snap, paired with dry conditions leading to less snowpack, affected mountain resorts in California and the West by reducing demand from snow enthusiasts. 

A relatively severe season of flu, COVID, and RSV peaked around New Year’s Day, five weeks later than the 2022-2023 season, which further discouraged travel. 

As a result, demand nights, or the total number of booked nights during the reporting period,  barely grew at 1.3% compared to the same time last year (year-over-year or YOY), and occupancy for January didn’t reach the higher pre-pandemic levels seen in the last quarter of 2023.

Employment and Inflation

It seems that despite fewer people traveling, many were busy working. According to the January jobs report from the Bureau of Labor Statistics (BLS), 353,000 jobs were added. That’s 20,000 more jobs than the stunning December results. The unemployment rate stayed at 3.7% for the third month in a row.

On the other hand, Inflation data was less favorable. The inflation rate, based on the YOY change in the consumer price index (CPI), reached an unexpected high of 3.1%. The inflation numbers will likely cause the Federal Reserve to postpone any decisions to lower interest rates until at least April.

At a Glance: Key U.S. STR Performance Metrics for January 2024

• Revenue per available room (RevPAR) declined 6.6% year-over-year (YOY) to $133.80
• Available listings were 1.54 million, up 10.5% YOY
• Total demand (nights) rose 1.3% YOY
• Occupancy was 7.0% lower YOY at 43.2%
• Average daily rates (ADRs) increased 0.5% YOY to $309.63
• Nights booked decreased 2.7% YOY

Available Listings See a Big Drop Across All Locations

Travelers looking to book a short-term rental (STR) in January had fewer choices than they did in December. It's normal for January to see a slight drop in available listings. It’s typically been a reduction of between 3,000-20,000 listings post-pandemic. This January saw a significant drop, however, with nearly 73,000 fewer listings than in December 2023. 

While it’s common for coastal resorts to have fewer available listings in January, the number of listings dropped significantly across all location types. Mountain and lake resorts saw nearly triple the drop in listings compared to last year. There were 11,392 fewer listings from December 2023 to January 2024, in contrast to a decrease of only 3,979 listings from December 2022 to January 2023.

Although the drop of 73,000 listings is much larger than what’s typically seen in January, it aligns with the typical reduction for February. February is conventionally the lowest month of the year for listings. The icy weather may have simply encouraged more property owners to close their listings early.

Decline in New Listings: A Continuous Trend

Another contributing factor to the reduced number of available short-term rentals in January is the ongoing decrease in new listings, a trend that’s been noticeable since listings reached a high in May of 2022.

In fact, the number of new listings for January (53,578), was the lowest we’ve seen since February of 2022 (50,554). New listings are the product of many factors. We attribute the high numbers seen in May 2022 to the outstanding performance of STRs in the years following the Covid outbreak, combined with low borrowing rates that encouraged investment in STR’s. 

Rental demand was higher than pre-pandemic levels for a time, but occupancy premiums have now dwindled. That, combined with higher interest rates, has led to a drop in the number of new listings.

Demand and Bookings Decline

The US short-term rental (STR) market saw an even more dramatic decline in demand and bookings. Over the last four months, there was a noticeable increase in both demand and bookings, with December showing bookings up by 12.3%. 

However, January produced the first negative YOY change in new bookings (-2.7%) in 21 months. Some of this can be attributed to the strong performance in bookings in January 2023, which stands as the highest monthly bookings recorded in the last 34 months. On the other hand, the growth in demand for January was just 1.3%, which is considerably lower than December’s 4.1% or November’s 7.4% growth rate.

Weather's Impact on STR Demand

The most likely reason for the slump in travel is the chilling arctic air mass that brought extremely low temperatures to much of the Northern US. The relationship can be seen on the map. Southern states showed no YOY declines in demand, but areas from the Northern Plains to Maine saw many instances of reduced demand.

Adding to the challenges of the cold weather, dry conditions across the West produced exceptionally low snowpack levels across the region. Additionally, New York’s vigorous enforcement of its strict STR regulations had an ongoing impact. In fact, the fallout from the New York market had such a large effect that excluding it from the total US figures increases the year-over-year (YOY) growth rate from 1.3% to 2.1%.

Occupancy rates, or the number of total booked days versus total available days, had been aligning very closely with those from 2019 since September of 2023. However, rates fell abruptly to 43.2% in January. This month historically has some of the lowest occupancies of any month, and the additional difficulties facing demand pushed that rate even lower.

Data broken down by location type illustrates the downturn in ski resorts and New York. While there was a general softening across all types of locations, mountain resorts and urban locations had negative YOY change. If you remove New York from the analysis, the demand change for urban locations shifts from a decrease of -3.4% YOY to an increase of +2.2 YOY.

Examining Market-Specific Trends

Examining specific markets also reinforces the narrative that cold weather, poor ski conditions, and New York regulations are all contributing to January’s demand slowdown. 

Bottom Performers

Demand in New York nearly halved (-47.1%) from January a year ago. Several ski destinations also experienced falling demand: 

• Big Bear, California: -18.4%.
• Denver, Colorado: -6.0%
• Lake Tahoe, Nevada: -6.8%
• Breckenridge, Colorado: -2.4%

Top Performers

Meanwhile, the market with the highest increase in demand was Jersey City/ Newark (+27.6%). This location almost certainly benefited from the reduction of listings in nearby New York. Other top-performing markets are in warmer regions:

• San Antonio, Texas: +13.6%
• Gulf Shores and Mobile, Alabama: +13.3%
• Miami, Florida: +13.2%

Chicago also had a significant rise in demand (+11.9%), despite feeling some of the effects of the chilly January.

ADR Growth Amidst Declining Demand

Even though demand saw a downturn, the growth in average daily rate (ADR), or the average rental income per paid occupied room in a given period, improved in January compared to December. 

In December, ADR rates declined in five of the six location types. Only three types of locations declined in January, and none saw losses amounting to 1%. Mid-size cities and urban locations experienced the quickest growth rates at 3.0% and 9.0%, respectively. 

In response to STR regulation enforcement in New York, low-price listings have been dropping out, leaving a more expensive market. The ADR rate increase in urban locations benefitted from this reduction in listings there. Even without New York, urban ADRs grew the most quickly, at 7.3% YOY.

Turning to market ADRs, 33 of the top 50 markets saw ADR growth year-over-year (YOY). New York stood out with the largest growth by far at 37.5%. It’s important to keep in mind that a lot of this increase is due to a shift in the mix of listings in the market. Lower-priced properties are exiting the market due to regulation, leading to a change in the type of properties booked (or what we like to call a “mix shift). In the case of New York, higher-priced luxury properties are left to dominate. 

The Role of the Repeat Rent Index (RRI)

The Repeat Rent Index (RRI) is a metric designed to track the performance of existing short-term rental properties over time, filtering out the impact of new listings. The RRI offers a clearer view of genuine market trends by focusing on the revenue performance of the same properties across different periods. This approach helps distinguish whether changes in the Average Daily Rate (ADR) are driven by shifts in the market or merely by new, differently priced properties entering the market. 

In addition to ADR growth, the RRI in New York showed some improvement (+2.6%). Most markets had RRI growth in January, meaning that ADR rates increased even when removing the effects of mix shift (new or different types of listings).

Early Spring's Positive Influence on STR Demand

Fortunately for STR operators and enthusiasts, the chilly January seems to be giving way to an early Spring. This isn’t just a prediction by Punxsutawney Phil, the famous groundhog. The Easter holiday falls in March of 2024 rather than April, leading to many Spring Breaks being scheduled earlier in the year. According to national pacing data, this calendar shift has given March (+12.8%) a slight edge over April (+9.7%).

The effect of earlier Spring Breaks is most pronounced for coastal resort locations, where the shift has moved demand away from April. Pacing declines in April will be as low as -27% and will increase to as high as +34.6% in the last week of March, compared to the corresponding dates in 2023.

SXSW and its Impact on Austin's STR Market

Finally, the classic STR event South by Southwest (SXSW) is coming to Austin March 8-16. Although this highly anticipated, weeklong event is currently pacing nearly identically to its 2023 incarnation, events the weekend prior are raising the stakes. 

There will be concerts from country super-star Blake Shelton on the first and the wildly popular Besame Mucho (making its Texas debut) on the second. As a result, STR daily rental demand is pacing 33.8% higher than 2023 over the course of the entire weekend.