2024 U.S. Short-Term Rental Outlook Report

The 2024 Outlook Report for the short-term rental (STR) market presents a comprehensive analysis of the industry's performance and future expectations, based on the trends of 2023. Here's a summary of the key points:

Revenue per Available Room (RevPAR): First annual decline since 2014, dropping by 4.9%. in the U.S. 
STR Market: Reached new heights despite revenue declines. Record demand in July and over 1.6 million listings by September.
Occupancy and Pricing: High supply and stretched consumer budgets led to reduced occupancy and limited pricing power.

Demand: Expected to grow by 10.7%, supported by economic growth and domestic travel recovery.
Supply: Slowed growth due to high mortgage rates, but still increasing. Supply and demand are anticipated to find equilibrium.
Occupancy: Likely to stabilize around 54.7%, similar to 2023 levels.
Average Daily Rates (ADRs): A modest increase of 2.1% is expected.
RevPAR: Predicted to rise by 1.9%.

Inflation and Employment: Inflation dropped significantly, and employment remained robust with wages growing faster than inflation.
Housing Market: Anticipated to see a slight decline in home prices, with mortgage rates expected to remain elevated but decrease slightly by the end of 2024.

Demand Shifts: Growth varied across locations, with urban areas recovering more slowly. Coastal and mountain destinations saw weaker demand growth in 2023.
Supply Trends: Supply growth exceeded demand, especially in urban areas impacted by regulatory changes.
Booking Patterns: Travelers are booking closer to their travel dates, impacting demand forecasts.

2023 was a year to forget for STR investors, but 2024 is poised to bring good news. 

In 2023 RevPAR was expected to decline by 4.9%, the first full year RevPAR declined since AirDNA started collecting industry performance data in 2014.  While most hosts saw revenue declines, 2023 also took the U.S. short-term rental (STR) market to new heights. July saw the highest number of nights demanded in any month, and the total number of available listings topped 1.6 million by September. Meanwhile, the US economy persistently defied predictions of recession, with unemployment remaining below 4% and inflation declining markedly quickly for most of the year. 

Stubbornly high supply growth coupled with the effects of consumer budgets stretched thin by high prices have meant that the dramatic occupancy gains recently seen have been essentially erased. Exceptionally strong price increases in 2021 and 2022 left travelers searching hard for bargains in 2023 as well. This left existing hosts with scant pricing power and new entrants little choice but to offer low rates to attract demand. Even if stories of “Airbnbust” proved overblown, and most markets saw strong demand growth, the lower unit-performance made 2023 feel like something of a correction year after two years of remarkably strong performance.

The good news is that improving economic news will be influencing decisions for travel in 2024. The vigorous supply growth that has been lowering occupancies is already slowing rapidly and has reasons to slow further, finding equilibrium with demand.

“Concerns about housing affordability reached a fever pitch in the past few years.”

A year of economic uncertainty and changing international travel patterns slowed demand growth in 2023, to 6.7% year-over-year (YOY). In 2024, economic growth and recovery in domestic leisure travel will reaccelerate demand growth to 10.7%.

High mortgage rates and soft per-unit performance have dampened supply growth from the extreme highs of 2022, but perhaps not as much as originally anticipated. Surprisingly strong listing growth in October and a relatively low percentage of listing churn will increase the number of available nights by 12.8% in 2023. Performance will return to long-running averages and bring supply growth back to 10.9% in 2024, striking a better balance with demand.

Occupancy has been steadily falling since the highs seen in 2021. By the end of 2023, the yearly average will land approximately at the pre-pandemic level of 54.8%. In 2024, balance in supply and demand growth will maintain occupancy at 54.7%, about the same as in 2023.

Inflation-weary travelers looking for affordable options kept rate growth to only 0.5% in 2023. As changes to the price level normalize in 2024, so too will ADR growth. ADRs should increase by about 2.1% in 2024.

The significant decrease in occupancy and near-standstill in ADR has caused RevPAR to decline 4.9% in 2023, the first such annual decline we’ve recorded. We can interpret the decline in 2023 as a return to more normal performance after the STR market’s meteoric rise in 2021. 2024 will see RevPAR raise by 1.9% thanks to steady occupancy and a 2.1% increase in ADR.

“ADRs should increase by about 2.1% in 2024. Steady occupancy and a small increase in rate will raise RevPAR by 1.9% in 2024.”

The Federal Reserve is expected to keep interest rates elevated through much of 2024. Credit: Adobe Stock/Tanarch.

The long-anticipated recession never materialized in 2023. The Federal Reserve’s rate increase regime started in 2022 to combat inflation, and its efforts seem to have been effective; inflation dropped from a high of nearly 9% in June 2022 to the current rate of 3.2%. 

Economic retraction was also a possibility, but at least two factors have mitigated this effect: diversification and savings. The current economy is more diversified than the last one which experienced inflation rates this high. In addition, considerable excess savings helped to keep spending and employment consistently high throughout 2023.

Employment consistently overperformed in 2023, and although the unemployment rate is higher than the low 3.4% reported in April, the nearly 200,000 additional jobs American companies added to payrolls in November kept it close, at 3.7%. This remains below what most economists would consider a “full employment” level, meaning that most people looking for work can find it, and hourly wages could continue to grow more than inflation, as they have since May of this year.

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Declining inflation has also been a dominant theme in 2023. After reaching a monthly high of 8.9% in June of 2022, inflation dropped considerably, then stalled during this year’s summer months. Oxford Economics expects that inflation will continue to decline, albeit slowly, through the rest of the year and into 2024 to nearly attain the Fed target of 2%. 

“Inflation will continue to decline, albeit slowly, through the rest of the year and 2024”

Unfortunately, the slightly slower trajectory of the Fed’s plan means that economists now expect rates to stay elevated throughout 2024. That said, the Fed also expects to cut rates from its current level of 5.25-5.50% to 4.6% by the end of 2024. While mortgage rates may lower slightly in 2024 in anticipation of this cut, significantly lower rates will take considerably longer. 

The deadlock in the housing market may induce lower home prices, and Oxford’s baseline scenario has home prices decreasing by about 2% through 2024. On the other hand, the balance of the possible economic scenarios is heavily weighted to the downside. The downside scenario, which is only slightly less likely than the baseline, contemplates a 7% reduction in prices. The upside scenario projects that prices will remain the same.

Many of these economic factors currently support consumption—the segment of GDP growth most closely related to the STR market—and will continue to support consumption in 2024. Consumption has made up a much larger portion of GDP change in 2023 than in 2022, and although there are some headwinds (including the moderate GDP slowdown), tamer inflation coupled with a tight labor market and growing incomes will help consumption in the coming year. Consumer balance sheets and excess savings also remain robust historically, further spurring consumption growth.

Demand growth slowed considerably in 2023, as did nights booked. A combination of economic uncertainty, weak consumption growth in Q2, and the delayed effect of inflation rates reaching a generational high worked together to weaken aggregate demand for stays. 

In addition, several unanticipated events further dampened demand, including a record-breaking heat wave in August, devastating wildfires in Hawaii and across Canada, and a hurricane passing through Florida’s Big Bend region near the peak of the travel season. September, October, and November experienced a re-acceleration in demand, bearing out predictions of additional interest in shoulder season travel.

The weak demand for STRs across the U.S. this summer wasn't necessarily because guests were pulling back travel but because Americans were once again traveling overseas and taking more cruises. Over this past summer, STR demand was up 17% for stays in international locations, while trips to domestic destinations increased just 4.5% YOY. Air travel was also up 12.5% over the past year, while trips on cruises rose over 78%.

Throughout the year, demand growth was weakest in coastal (+2.8%) and mountain (+4.9%) locations, which were the two markets that benefited most from higher domestic demand in 2021 and 2022. Surprisingly, demand continues to be the strongest in small and mid-size cities across the country. Demand maintained double-digit growth through 2023,  which has been helped by healthy listing growth in those same areas.

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An examination of market-level performance reveals considerable differences, but generally, demand growth was positive. Some of the weakest markets were those affected by the aforementioned disasters. Interestingly, Phoenix/Scottsdale managed to weather the hottest temperatures ever recorded in a U.S. metropolitan area to grow its demand by more than 25%, thanks in large part to Super Bowl LVI. Jersey City/Newark also saw large demand increases, as the enforcement of severe restrictions in New York City sent travelers across the Hudson as a substitute.

Jersey City saw increased demand as a result of stricter regulations in New York City. Credit: Adobe Stock/Mandritoiu.

Looking to 2024, most markets will likely be in even greater demand, except for New York and Maui. Several markets, including hurricane-devastated Cape Coral/Ft. Myers, should rebound in 2024 after unusually difficult circumstances in 2023. Several Texas markets, such as San Antonio and Austin, are already seeing accelerating demand for 2024 after a somewhat sluggish summer.

“Jersey City and Newark saw large increases in demand as the enforcement of severe restrictions in New York City pushed these markets forward as a substitute.”

Predicting Demand: Balancing Near-Term & Longer-Term

Looking forward to 2024, economic conditions and longer-term trends are more useful for prediction. Wages are now growing more quickly than inflation, and consumers can look forward to having higher purchasing power independent of their savings. It appears that the U.S. has also avoided a recession, despite it previously being seen as a foregone conclusion when rates were rising quickly. The more favorable conditions will help all location types improve demand growth, though Urban location types will see a smaller improvement later in the year. 

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Forward pacing, or “on the books” demand, is a useful tool to predict future STR demand—with some caveats. Booking pace is most effective for near-term variation and requires that we consider lead times since; the timing of reservations can have a significant impact on how meaningful forward pace is. 

Lead times have been on a downward trajectory since 2018, with guests feeling increasingly more comfortable waiting to book their stays. 2020 marked an especially low lead time, as anxiety about COVID-19 and uncertainty about shifting restrictions led to deferred decision-making. Still, lead times continued to decrease after recovering slightly in 2021. On average, travelers waited a week longer to make reservations in 2023 compared to the year before, and suburban locations saw lead times even lower than in 2020.

Keeping these times in mind, the forward pace suggests that the intensified interest in shoulder season will continue through to December before dropping off in January.  As we look at demand booked for spring, we see spring travel demand re-accelerating in March, April, and May 2024.

“Wages are now growing more quickly than inflation, and consumers can look forward to having higher purchasing power independent of their savings.”

Urban locations had some of the quickest growth rates in 2022 and the beginning of 2023. Increased competition from conventional hotels as well as increasingly restrictive regulation in some of the largest Urban markets will limit how quickly demand can increase in these locations in 2024.

When looking at annual averages, Urban locations are the only type that will likely experience slower growth in 2024 than in 2023. To some extent, this is a result of the outsized performance of Urban demand in 2023. Throughout the year, growth rates for Urban locations slowed dramatically, and just as Urban locations were somewhat late to recover post-COVID-19, demand reacceleration in Urban markets may lag behind other location types by about six months before picking up closer to the middle of 2024.

Leisure demand, particularly in the Coastal and Mountain/Lake Resort locations, showed some weakness in 2023 but is expected to pick up in 2024, as wage growth exceeds inflation and economic growth accelerates. Coastal resorts will have an especially large increase in growth, as continued interest in shoulder seasons is already spiking growth in this market type. Nevertheless, Mid-Size and Small City/Rural markets will be the resounding leaders in demand growth and will continue to increase their share of the U.S. STR market.

Supply in 2024: Ferocious Growth Now Finds Balance

For the second year in a row, supply growth easily exceeded demand growth. The usual pattern of change in available listings is that the most growth occurs between March and June to take advantage of summer travel. 

2023 departed from this norm in September and October as total available listings continued to grow, bringing the total number of net additional listings to about 300,000 for February through October. While smaller than the increase in 2022, the listing growth was surprisingly high given housing market conditions, and the gap between the pre-COVID-19 trend and current available listings shrank to its thinnest margin yet.

An important variable for forecasting future supply has historically been the potential investment yield for new short-term rentals, or the difference between typical monthly revenue for an STR, the typical monthly mortgage payment for a new home, and the cost to purchase a home during that period. The yield reached an all-time high during the summer of 2021, when monthly revenue was 31% higher than it was pre-COVID-19 after lower interest rates made new home acquisitions relatively affordable.

The effect was a steady influx of new supply that began to erode the unit-level performance of a typical STR, with average revenues falling by 11% since the peak. At the same time, quickly rising interest rates and home values have more than doubled the typical payment for a new mortgage. 

The effect of the premium has some lag, as it takes time to understand the premium and mobilize new supply. New listing growth has been diminishing steadily since a high in July 2022 and has been negative for most of 2023. For 2024, the lagged effect of the current premium should continue to discourage new supply.

A factor that has effected Urban market supply, in particular, is regulatory intensity. Supply in the Urban location type is more concentrated in select large cities. Although housing affordability is a long-standing problem, concerns reached a fever pitch in the past few years after a decade of slow development and renewed investor interest in residential real estate following the pandemic. With the future of office and retail in question, housing prices experienced a rapid run-up, and soaring rents and home prices have become a powerful political issue in urban areas in particular.

In urban areas such as New York City, soaring rents and home prices have become a powerful political issue. Credit: Adobe Stock/Jonbilous

Occupancy in 2024: A Return to Normal After COVID-19

Pent-up demand and limited supply in 2021 boosted the U.S. STR occupancy level to over 61% on an annual basis, its probable peak. In response, a rush of new supply flooded the market the following year and through 2023, lowering occupancy to approximately the pre-COVID-19 average of 55%. 

Natural occupancy is a prevailing hospitality theory that there is an occupancy level above which hosts and investors will be tempted to enter the market and below which they will leave. If the pre-COVID average represents a normal, or natural, level of occupancy, then supply will expand proportionate with demand. Although the adjustment process is not perfect, this is the most likely case for 2024.

Turning to locations, there are departures from the national aggregate. Whereas occupancy in Small City/Rural and Mid-Size Cities has returned to approximately its 2019, pre-pandemic level, Resort locations now have an appreciably higher occupancy rate than they did in 2019. This speaks to a greater utilization of the resources in these areas, where development is often difficult and demand has been strong. 

Suburban and Urban locations, on the other hand, continue to see occupancy well below their 2019 levels. Aversion to densely populated areas has persisted even after COVID-19 restrictions lifted, and our predictions for 2024 keep these occupancy changes roughly the same. It may take considerably longer than through 2024 for these markets to recover pre-2020 levels of occupancy.

Aggregate ADR for much of 2023 was less than the previous year. Large price increases in essentials such as food and housing pinched consumers’ budgets, while the continued decline in occupancy across all location types weakened pricing power. 

Occupancy declined across all price tiers over the past year, but only one listing type also saw falling ADRs and RevPARs: luxury and upscale listings. Many travelers who usually book higher-priced stays traveled internationally this year, weakening demand for more expensive properties in 2023 when compared to 2022. At the same time, guests also “traded down” in demand, meaning travelers who would otherwise book luxury STRs chose lower-priced stays to save on trip costs. 

With many hosts now using dynamic pricing tools, weaker demand can just as easily show up in lower ADRs as it can in lower occupancies, since hosts start to discount their prices when bookings slow. 

When we look nationally, it appears that most of the ADR weakness was not necessarily from hosts lowering their rates but rather that the new supply of STRs generally offer a lower ADR than the existing supply. We developed the AirDNA Repeat Rent Index (RRI) to help reveal which factors are truly responsible for the changes in overall ADR trends.  

The difference between the average ADR and RRI is due to the mix shift, which is the change in the average rate in a market due to the new supply having significantly different rates than the existing supply. It seems that STR hosts and managers anticipated the value-seeking behavior on the part of travelers, and the new supply sought to capture it with lower ADRs.

Considerably lower inflation and wage increases, along with more stable occupancy, will help the STR industry regain a small measure of pricing power. Growth rates are currently close to the bottom. 

Although no location type is likely to increase same-store rates by even as much as 2%, 2024 should bring a slight upward trajectory for ADRs. With occupancy flattening, this will give rise to a small growth in overall RevPAR, which is reflected in small increases to RevPAR for most locations. Urban locations, though, will see slightly lower occupancies, while Coastal and Mountain locations will have both flat occupancy and rate and should see little RevPAR change.

Economic Conditions in 2024: Downside risk remains

While the above forecasts are our Baseline scenario and represent what we believe are the most likely outcomes, we can consider other possibilities to prepare for any uncertainty. Oxford Economics suggests three alternative economic scenarios: the Moderate Downside, Upside, and Severe Downside. We have conducted parallel analyses with these to compare with the Baseline. 

These scenarios account for variations that could materially raise or lower the performance of the economy, such as a housing price correction, commercial real estate collapse, the Federal Reserve over-correcting in its interest rate policy, or, on the positive side, pulling off the “soft landing” and avoiding economic hardship while lowering inflation.

The Upside and Downside scenarios are only mildly less likely than the Baseline. The Severe Downside, on the other hand, represents an extremely unlikely, but still possible, scenario. The bright side is that demand growth, while lower in the Downside scenario, only turns negative in the Severe Downside, which is the least likely scenario. On the other hand, the Upside scenario provides only a modest lift, supporting our Baseline predictions that the economy will perform well.

In terms of revenue growth, we could interpret the scenarios as follows: 

Our baseline assumption is that 2023 was a correction year that will be followed with slightly better performance. 

Our Upside scenario is a slight improvement to the baseline. If the Upside scenario comes to pass, any additional boost in RevPAR performance will likely be limited by extra supply growth, keeping occupancy at roughly the same level.  

Our Downside scenario predicts that performance will continue to slip as the slight economic slowdown becomes a mild recession.

Our Severe Downside, the least likely and most catastrophic scenario, reverts revenue to pre-pandemic levels by the end of 2024.

As we look towards 2024, there is room for cautious optimism in the STR market driven by a healthy economy and an anticipated alignment of supply and demand. However, this optimism is tempered by the potential risks of continued supply growth and lingering economic uncertainties. 

These challenges will test the industry's resilience, underlining the importance of strategic adaptability and close monitoring of evolving trends. 

Ultimately, while there are positive signs of recovery and growth, STR owners and operators should remain vigilant and prepared for the varying scenarios that could unfold in a still-fluid economic landscape.

The 2024 Outlook Report for the short-term rental (STR) market presents a comprehensive analysis of the industry's performance and future expectations, based on the trends of 2023.

AirDNA: 2024 Outlook Report

The U.S. short-term rental market is set to find equilibrium in the coming year. Here's what you need to know.

2024 U.S. Short-Term Rental Outlook Report

2023 Overview

2024 Projections

Economic Context

Market Dynamics

“Concerns about housing affordability reached a fever pitch in the past few years.”

“ADRs should increase by about 2.1% in 2024. Steady occupancy and a small increase in rate will raise RevPAR by 1.9% in 2024.”

“Inflation will continue to decline, albeit slowly, through the rest of the year and 2024”

“Jersey City and Newark saw large increases in demand as the enforcement of severe restrictions in New York City pushed these markets forward as a substitute.”

“Wages are now growing more quickly than inflation, and consumers can look forward to having higher purchasing power independent of their savings.”

Invest & host confidently
with AirDNA

2024 U.S. Short-Term Rental Outlook Report

2023 Overview

2024 Projections

Economic Context

Market Dynamics

“Concerns about housing affordability reached a fever pitch in the past few years.”

“ADRs should increase by about 2.1% in 2024. Steady occupancy and a small increase in rate will raise RevPAR by 1.9% in 2024.”

“Inflation will continue to decline, albeit slowly, through the rest of the year and 2024”

“Jersey City and Newark saw large increases in demand as the enforcement of severe restrictions in New York City pushed these markets forward as a substitute.”

“Wages are now growing more quickly than inflation, and consumers can look forward to having higher purchasing power independent of their savings.”

Invest & host confidentlywith AirDNA

Invest & host confidently
with AirDNA