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Data Before Drama: The Real Story Behind Recessions and Short-Term Rentals | Episode 2 | ‎STR Data Lab™ by AirDNA

If we go into a recession, will it be as bad as prior ones? Will the hospitality industry take a hit? Should you be investing in real estate right now?  Is the latest news from the Federal Reserve keeping you up at night? You’re not alone. In our first-ever episode of the STR Data Lab,  Mariah Kamei and Jamie Lane discuss what past recessions can tell us about the current economic market.

This episode covers these burning questions from two perspectives–travel demand and housing prices. In previous recessions (2001 and 2008), the consumer was more likely to stray away from travel, but at the moment, this seems unlikely to happen. And luckily, the short-term rental industry offers a wide variety of accommodation types and price points to match the wallet size of many travelers.

Additionally, a shift in the housing market will create some opportunities. Over the past three years, we have watched housing prices increase by 42%. With the potential price decline, you may just be able to find a long-term investment in your price range. 

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Transcript

00:00:00:24 - 00:00:24:28

Speaker 1

All. Hello. Hello, AirDNA data nerds, this is the STR Data Lab, the podcast where I sit down with the smartest man I know in this business, Jamie Laing, VP of Research. And we talk about what is happening in the news. I was recently listen to a podcast. I'm totally going to steal their line. Jamie Lynn Data before drama.

00:00:25:09 - 00:00:46:09

Speaker 1

So we get to the data, not the drama of what's happening in the business. And in this particular segment, Jamie and I are going to talk about sort of what's been happening in the news and hopefully make some sense of some of the things that are going on. So, Jamie, of course, it's October 7th, 2022. Just a time.

00:00:46:09 - 00:01:10:28

Speaker 1

Time data is the thing that everyone in our business is talking about right now is the economy from a macro level and what's happening. I'm not I don't know how I'm going to use the R word. I think that word is a little scary for everyone. However, we'll call it a downturn. And you have been talking to me and several other folks about this topic.

00:01:10:28 - 00:01:40:12

Speaker 1

Of course, Jamie, last time we talked, you were like, well, there's a 5050 chance that we get into something that is actually called an R word recession. I'll say it. So so talk to me a little bit about I was thinking this isn't the first time we've gone through one of these. So talk to me a little bit about what we've learned from previous recessions as it relates to travel industry, travel, demand and hospitality.

00:01:41:01 - 00:01:43:19

Speaker 1

Help me help me sort of get context here.

00:01:44:13 - 00:02:29:15

Speaker 2

Yeah. So first first off, I hate drama, but I love data. So this is the exact right conversation that you should go for with all the drama that there is around the industry today. But I do think it's really important to sort of put in what we expect to happen. Maybe if we do go into recession, into contexts of previous recessions, they think what especially why people in our industry being travel and tourism get so worried about recessions is because the past three recessions have been so detrimental, especially for our industry.

00:02:29:28 - 00:03:06:19

Speaker 2

So I don't think we need to talk about COVID. I think that's like really obvious, like why that was so detrimental to travel and tourism. The fact that we were all stuck in our house for a long time and then obviously short term rentals ended up being a beneficiary of that once we were able to get out. But there was quite a few really bad months prior performance and quite a few companies within our industry that didn't make it through that recession.

00:03:06:19 - 00:03:44:00

Speaker 2

Do we go back one more recession? You've got 2829 housing crisis. Really the the worst recession since the Great Depression and one that impacted consumers and specifically and people that would have traveled much more so than really any other recession prior to the Great Recession. And that really did impact travel. So while DNA wasn't around back then, unfortunately.

00:03:44:21 - 00:03:48:19

Speaker 1

We were though. We were there. We remember it. Really? Yeah.

00:03:49:01 - 00:03:53:00

Speaker 2

I. I definitely remember it. I was in my first job out of college.

00:03:53:22 - 00:04:02:06

Speaker 1

Yeah, me too. Me, too. I think I. In fact, I think the job went away.

00:04:02:06 - 00:04:12:13

Speaker 2

But we can look to other industries. And specifically, I've done a lot of research around the hotel industry and what happened to it during prior recessions.

00:04:12:25 - 00:04:13:14

Speaker 1

While that.

00:04:14:01 - 00:04:43:15

Speaker 2

So there's data from both CBRE, my prior employer and STR, which tracks sort of monthly data for the hotel industry. And in both of those we can get a sense of what happened, like at the peak decline during the 2000 829 recession, rev par was down about 40% and that's even when we look at just hotels and resort areas.

00:04:43:15 - 00:05:14:10

Speaker 2

So as much as we can find comparable properties to maybe traditional vacation rentals, so it was down 40% at its peak, about 20% industrywide down talking about rev par for the year and 2009. And it took a full five years to recover. And you think about that and then how quickly we recovered after COVID pandemic, just whole different recessions.

00:05:14:22 - 00:05:22:24

Speaker 2

And if you had in your mind that sort of baseline that a recession could look like, though 8091 that would that would scare me.

00:05:23:17 - 00:05:45:08

Speaker 1

Yeah. Yeah. Well, we all sort of have that post-traumatic stress, I would say. Right, of having that moment in our lives that really like paused everything. It paused everything for me, you know. Right. So it's understandable for people to think about that, which, again, is why we're talking about the data, what actually could potentially happen.

00:05:45:18 - 00:06:11:09

Speaker 2

And then but maybe some other sort of context, if you look at the 2001 recession, so travel and we already sort of in some weakness in 2000 with the tech collapse of the sort of tech bubble that sort of burst out in Silicon Valley. But what really sort of sent the US into recession was the attacks on 911.

00:06:11:25 - 00:06:42:21

Speaker 2

Right. And in the immediate aftermath of that, people were afraid to travel right? People did not want to get on planes. We did not see cross-border travel similar to what we had during COVID. If people were going to travel, they were doing it by car. That was anecdotally, I heard actually pretty good for short term rentals back then, similar to the recovery around COVID of short term right outperformed traditional hotels.

00:06:43:12 - 00:07:11:12

Speaker 2

But even for hotels and the recession that ensued at peak, we were down about 25% forever. And it took two full years to recover. And then I'm just going to pull back to the recession prior to that. One more was the 1990. Yeah, 1991. I was too young to remember this one, but this one is what I see.

00:07:11:20 - 00:07:48:10

Speaker 2

Looking back even further back through the data is much more typical of how recessions impact travel and tourism. It was only peak to trough a 10% decline in rev par and it took about a year to fully recover. So that one did not specifically impact travel and tourism. Travel demand. It was sort of an a byproduct of increasing unemployment, a pullback in discretionary income.

00:07:48:26 - 00:08:20:03

Speaker 2

But that's the one, though, I would say over to the past four recessions is the best comparable to what we might expect going into a a mild recession. Is is what I would say is is most expected if we do have one. And then my former colleague at CBRE, Robert Mandelbaum, actually did a great piece. We'll link in the show notes of looking at every single recession.

00:08:20:03 - 00:08:52:01

Speaker 2

Going back to 1938, my contact was on hotel performance and what I really love is the takeaway. There is when you look at all those recessions, the average annual revenue decline was only 1%. Wow. That's where it sort of points to me that, yes, in a recession, people pull back on travel, but typically it's short lived. They want to take their vacations.

00:08:52:15 - 00:09:10:28

Speaker 2

They're not going to skip, but more than likely multiple recessions unless they're sort of in a we're in a deep recession where there we're seeing long term unemployment. And that's just not what I expect or I think most economists are expecting today.

00:09:12:01 - 00:09:32:20

Speaker 1

Yeah, I think, like, if I'm interpreting if I'm picking up what you're dropping down, right? You look at the oh one recession and the oh eight recession, and there were sort of these very, you know, strong, strong and even COVID, right. Strong things that just prevented people from traveling. Right. And this isn't necessarily that case. I also think we've become more flexible.

00:09:32:20 - 00:09:56:07

Speaker 1

Right. There's other ways to travel, to your point. Maybe there's less plane rides, but there's more if gas prices continue to go up right. There's less people willing to fork out, you know, thousands of dollars to fly on a plane. But they're still going to drive somewhere on spring break instead. And so it may. Do you think that it would be right to say that there may just be a shift in sort of how people travel, where people travel in a paycheck?

00:09:56:17 - 00:10:28:13

Speaker 2

And that's actually a great benefit for the industry that we're in, given that we got a wide variety of price points that people can sort of enter the industry into. So maybe if we're doing recession, there is a impact, maybe more so at the higher end or more so at the lower end. But since the industry is so diverse, we still have the ability to accommodate people at all price points.

00:10:28:13 - 00:10:39:02

Speaker 2

And even if there is a trade down, that could still and mean and at least pretty strong demand for our industry going forward.

00:10:40:07 - 00:10:58:07

Speaker 1

Yeah, I love that. And I just, you know, I, you know, anecdotally just see travel as part of our culture. It's something that everyone really embraces, especially in the United States. So just I just don't see that. I hesitate to say it's not a luxury. I think it is still a luxury. It's still part of discretionary spending. Of course.

00:10:58:07 - 00:11:17:22

Speaker 1

But I do think it's for most people a really important part, especially when you think about like the millennials, elder millennials such as myself, and our proclivity to invest in experiences versus material possessions. You know, I keep joking. I'm getting closer to Gen X on that. I'm like, Then I do need a nice car instead of a nice vacation.

00:11:17:22 - 00:11:25:01

Speaker 1

I can't decide, but I'm still classifying myself. Folks, as an elder millennial.

00:11:25:19 - 00:11:30:17

Speaker 2

Although you ride your bike to work every day, you still get someone else that is.

00:11:31:01 - 00:11:40:08

Speaker 1

Thank you. Thank you. Yeah. I mean, it's not a fixed gear bike anymore. So I've lost my hipster. I've lost my hipster card, but I still have my millennial card.

00:11:40:08 - 00:11:47:06

Speaker 2

I think that happens to a lot of people once they leave Brooklyn as they sort of trade their their fixed gear bike for some years.

00:11:47:25 - 00:12:07:01

Speaker 1

You know what? It's so true. Yeah. No. Yeah. Nobody wants to ride a fixed when they're 40, which may or may not be able to him anyways. I know. I like to make it about me like okay back back on business. Back on business. Well, I really love that perspective because to be honest with you, there's a lot of articles right now going like, well, what's going to happen to travel demand?

00:12:07:01 - 00:12:33:05

Speaker 1

And there's just so much hearsay around all of this and so contextualizing what's really happening. And also just kind of looking at it historically, right, like the intention of our podcast is to provide people with some level of clarity and also to just give them confidence in making smart decisions backed on data. So shout out to the Thanks for visiting podcast, Annette and Sarah.

00:12:33:05 - 00:12:56:08

Speaker 1

They're the ones that coined data over drama, loves their latest episode where they just talked about again, we've talked about this anchoring off the high guys like yes, your bookings may have been through the roof. Yes, your ADR may have been through the roof year over year. When you looked at 2020 to 2021. But if you look further back, you're probably doing really well.

00:12:56:08 - 00:13:21:14

Speaker 1

The whole industry is growing in terms of all the metrics that matter. Right, including demand. Okay. Okay. So that I think hopefully gives some of you hosts out there a piece of mind. But the other component of that, of course, conversely, is real estate investment, which is just sort of seen like it's one of the largest asset classes I'm not going to have the number in front of me because, you know, you're the data guy.

00:13:21:14 - 00:13:44:21

Speaker 1

I'm not. But but I do know it's one of the largest growing asset classes, especially in the United States. Lots of people have, you know, turned to real estate investment as a means of financial freedom. So let's talk a little bit about the housing market and what's going on there. I know Zillow also recently sort of, you know, finally posted a little bit of a weakening in house prices.

00:13:46:16 - 00:13:48:18

Speaker 1

What's your take? What's your hot take, Jaime?

00:13:49:10 - 00:14:14:26

Speaker 2

Yeah, and and I follow a bunch of housing economists here as well. And I think hot take today is that I'm sort of baked in to the outlook now is at least like a 10% reversion in housing prices. If we go into a recession, that could be an upwards of 20% down, which on its face is is pretty scary.

00:14:15:15 - 00:14:48:07

Speaker 2

Right. We look back on on average what happened during the the housing crisis of 0809. And it was it was is it was less than a 30% decline. It was like 26, 27% and peak to trough decline in housing prices. So 20% drop, I think is is obviously significant. But it's also important to put that into context of how high housing prices have really appreciated over the past two years.

00:14:49:05 - 00:15:18:24

Speaker 2

So if we sort of take where we're at now, shave off 20%, that puts us back where we were at in April two, 2021. So that's got to go of appreciation that we're we're losing and that even at 20% down, that would still put us at 13% above pre-pandemic housing prices. So where we were at in February of 2020.

00:15:20:05 - 00:15:26:26

Speaker 2

So for those of you that have bought in the past two years, obviously some pain there.

00:15:29:05 - 00:15:34:00

Speaker 1

Personally, personally relatable, keep going.

00:15:34:00 - 00:16:09:01

Speaker 2

But in terms of the overall picture of of where we're at and in those with sort of longer term investments and given that and typically a home is and the largest investment that someone's going to make and that's that is going to cause some pain but also present prevents are presents some opportunities. So you've been on the sidelines and see seeing housing prices increase 42% over the past three years.

00:16:09:21 - 00:16:30:18

Speaker 2

Maybe you've taken a pause on investment that you want to wanted to make and even markets that you really know what those earning potentials are long term this now maybe will present you that opportunity to get in at a price point that you're comfortable with for a long term investment in that market.

00:16:31:22 - 00:16:54:19

Speaker 1

Right. I love that. It's sort of like tailoring your investment strategy to maybe more long term opportunities where you can afford to let something depreciate over time or even just. I think you were mentioning to me earlier that there's a correlation between sort of those like places that will probably have longer term gains and also just be places where potentially people naturally migrated to with remote working.

00:16:55:01 - 00:16:59:01

Speaker 1

Did I interpret that correctly? Am I getting an A-plus or B-minus on that one? I don't know.

00:16:59:25 - 00:17:02:27

Speaker 2

I, I think an A-plus.

00:17:02:27 - 00:17:06:10

Speaker 1

Well, you heard it here. You heard it here.

00:17:06:22 - 00:17:37:13

Speaker 2

And there's definitely been more appreciation in some of the markets that have been most popular for people to work remote or travel to and stay in short term rentals. So like the poster child there is like Boise and in Austin, places that saw really strong in-migration from California, from the Bay Area, people with newfound ability to work remote wind to try new places, housing and was tight.

00:17:37:23 - 00:17:57:09

Speaker 2

It caused a run up in prices and now we're seeing that come down and those are a great short term rental markets we're seeing. So on a demand in those markets and if you had an opportunity to get into those at an attractive price point, I would definitely jump on it.

00:17:58:28 - 00:18:13:26

Speaker 1

Love it, love it. Well, I'm feeling better about nearly everything, including having purchased a house a year ago, but it is in Denver so hopefully will same same premise I think as Austin a little bit and we're in it for the long haul.

00:18:14:11 - 00:18:21:12

Speaker 2

Talking with a lot of investors today and day two of trying to get an understanding of where their minds at.

00:18:21:22 - 00:18:22:06

Speaker 1

Yeah.

00:18:22:09 - 00:18:55:18

Speaker 2

Of investing into a recession is also on interest rates because more than likely interest rates aren't going to start coming down until we're and see sort of the red lights flashing of a recession. And the Fed looks to take action to mitigate and how deep it would be. But that does probably mean we're going to be in a high interest rate environment for some time, maybe at least the next six months to a year or so.

00:18:56:05 - 00:19:29:05

Speaker 2

And but if we didn't then did go into a recession, that would mean an environment where they're cutting rates and potentially the opportunity to refinance at a lower rate down the line. And for a lot of people, that that is their plan of buying now, finding a good deal over the next six months to a year and then later on, once rates come back down and and not necessarily worrying a lot about the current high interest rate environment.

00:19:29:15 - 00:19:48:02

Speaker 2

And I think that might point to a lot of why we're still seeing growth in in new short term rentals so strong given that people do see that they can or they can refinance down the road once they once interest rates come back down.

00:19:49:06 - 00:20:14:25

Speaker 1

I love that. Yeah. And it sounds like, you know, quite a few people are, you know, being smart about just thinking about this in the long term, right? Either like looking historically back and finding context there or like thinking forward, right? Like this isn't yeah, this isn't the get rich quick scheme, right? It's sometimes it's advertised as this is like, you know, building a viable, sustainable business and that'll pay dividends going forward.

00:20:14:25 - 00:20:17:07

Speaker 1

So nice to see that. I know.

00:20:17:24 - 00:20:18:10

Speaker 2

And nor is.

00:20:23:24 - 00:20:44:05

Speaker 1

I know we were recently at BP on bigger pockets on it over in California. And I think that was a lot of the sentiment to that we were hearing. Right, is just like, you know, there's there's still quite a lot of opportunity in real estate. And also, you know, again, one of the things I love about short term rental is, hey, you don't always have to go out and buy a house, right?

00:20:44:05 - 00:21:10:04

Speaker 1

There's lots of other ways that you can get into this business. Co-host Of course, arbitrage where it's legal and even just co-ownership, right? There's a lot of really interesting opportunities out there for people. One, one of the thing that sort of strikes me just thinking again about my personal life and also I think all of us sort of just as a people, is that when we have these downturns, I'm rebranding it as a downturn.

00:21:10:04 - 00:21:36:21

Speaker 1

For now, it's like sort of necessity is the mother of invention, right? Like it's this huge opportunity for people to to reinvent themselves, to find new ways to exist. So and to thrive in the short term rental business. Jamie, you've made me feel better. Hopefully, we've also made our listeners feel better. Let's, you know, let's keep getting some good comments from them.

00:21:36:21 - 00:21:52:14

Speaker 1

Would love to field maybe some of their questions when we do our monthly review here in a couple of weeks. And the main thing for us is we're gearing up for VMA, VMA in Las Vegas, baby. So get ready to see us out there and we'd love to see you guys as well.

00:21:53:00 - 00:21:56:15

Speaker 2

Yeah, we'll both be out there. Would love to meet up with our listeners.

00:21:57:06 - 00:22:15:09

Speaker 1

Exactly. Yeah, we do. And we'd be happy to meet up with listeners. There's lots of fun to be had in Vegas. I heard we're going to have the hangover kits at our booths just so everyone knows where to get their Pepto-Bismol and Alka-Seltzer. It'll be at the rDNA booth. All right, Jamie Lynn, pleasure talking to you as always.

00:22:15:09 - 00:22:17:20

Speaker 1

Have a fabulous weekend, my friend.

00:22:17:20 - 00:22:20:02

Speaker 2

Thank you. Thanks for right.

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