U.S. Short-Term Rental Market Review: December Supply and Demand Remain in Balance, Promising a Banner 2024

2023 was a dynamic year in the U.S. short-term rental (STR industry). Over the past 12 months, we saw the most in-demand month on record; July marked nearly 24 million nights stayed, September racked up the largest-ever number of available listings in a month with 1.64 million, and annual revenue reached its highest amount yet at approximately $64 billion.

2023 also brought the end of the incredible occupancy seen since 2021. High inflation and the looming threat of a widely forecasted recession—one that fortunately never materialized—weighed down demand growth. Occupancy, particularly at the beginning of the year, dipped below pre-pandemic levels as the rapid supply growth overcorrected for the soaring occupancy from previous years.

On the other hand, the economy performed better than expected by the end of the year. Recession is no longer a fixture in Oxford Economics’ baseline forecast, and the unemployment level remains at near-record lows. Although many uncertainties still exist across geopolitics, natural disasters, and the U.S. regulatory environment, we’re starting 2024 on a much firmer economic footing than in January 2023.

At a Glance: Key U.S. STR Performance Metrics for December 2023

• RevPAR declined 8.1% YOY to $155.37
• Available listings reached 1.61 million, up 14.3% year-over-year (YOY)
• Total demand (nights) rose 4.3% YOY
• Occupancy was 5.8% lower YOY at 49.9% (-0.6% vs. 2019)
• Average daily rates (ADRs) fell 2.4% YOY to $311.09
• Nights booked increased 11.5% YOY

Economic conditions facing the U.S. traveler continued showing resilience and even strength. The Bureau of Labor Statistics (BLS) jobs report for December indicated that 216,000 jobs were added during the month, a total even higher than the unexpectedly robust November number of 173,000. This left the unemployment rate unchanged at 3.7%. The positive employment news may have led many to begin planning trips for 2024, as year-over-year (YOY) growth in bookings remained in the double digits in December at 11.5%, despite dipping below November’s 12.3%. 

Hosts and investors have also been carefully watching economic data for signs that monetary loosening is on the horizon. Consumer Price Index (CPI) inflation did increase slightly in December to 3.3% from November’s 3.1%. However, inflation minus food and energy—a less volatile measure considered by the Federal Reserve—slowed to 3.9% in December from 4.0% in November. Moreover, a measure called the producer price index (PPI) that reflects how much producers receive for their goods and, in turn, indicates how consumer prices may change, fell slightly in December, and revised data from the BLS shows very strong productivity gains in Q3 that could exert some pressure to drop inflation.

Amid this ambivalent inflation data, the Fed has recently signaled that it plans on relaxing monetary policy, which could include rate decreases. Lenders have begun to reduce mortgage rates in anticipation of lower interest rates, dropping down from the high of 7.8% in October to 6.6% by the final week of December, according to Freddie Mac. With forecasts from Zillow and Redfin showing home prices likely to stay even or decline slightly, housing transactions could be significantly higher in 2024 than in 2023, providing more flexibility for operators to enter (or leave) the STR market.

A Look Back at 2023

With the December data fully accounted for, we can now examine annual totals for 2023. Like 2022, supply growth in response to the post-pandemic high performance was the year’s major theme. Supply of available nights increased 12.6% YOY in 2023. This was well ahead of the more subdued 6.5% growth in demand, and occupancy for the year was, on average, 5.4% lower in 2023 than in 2022 as a result. The positive side of these data is that, while occupancy dipped below pre-pandemic levels early in the year, the market responded to this over-correction. By September, occupancy was almost exactly in line with 2019 levels and has since very tightly adhered to those levels. 

The increase in available nights even exceeded the increase in average monthly available listings, which grew only 11.5%. This indicates greater utilization of the existing listings—that is, hosts are opening their calendars for more nights—and coincides with the lower listing churn we observed in 2023.

The data also points to another strong 2023 trend: the extended summer travel season, which expanded into September and October. Whether due to the blistering heat wave that depressed demand in August, a difficult housing market that had some operators in “golden handcuffs” (i.e. unable to sell property with prevailing interest rates so much higher than the beginning of 2022), or consumers looking for ways to beat inflation by taking advantage of off-season rates, September and October had a slight but material increase in available listings compared to August. We have not observed this phenomenon before, but as the summer heat intensifies, preferences for later travel may have staying power.

The extended-season supply increase was short-lived, and available listings are about 30,000 fewer than the high in September. New listings also seem to indicate slowing supply. Although the absolute number of new listings is slightly higher than December 2022, new listings as a percentage of available listings in December 2023 was the smallest of the past five Decembers.

After three months of acceleration, U.S. short-term rental (STR) demand growth slowed in December to 4.3%, down from 7.5% in November. Bookings, a leading indicator for demand, remained relatively strong, at 11.5%. This was slightly less than the 12.3% growth in bookings for November, but higher than any other month since June.

Hosts seem to have anticipated the demand slowdown in December, perhaps noting that New Year’s Eve landed on a Sunday this year rather than the more overnight-stay-friendly Saturday it fell on in 2022. As a result, supply growth slowed in concert with demand, producing an occupancy nearly the same as the pre-COVID-19 level of December 2019.

This was a welcome result, since the unexpectedly low demand growth in December could have produced lower occupancies if supply hadn’t followed suit. The STR market is currently in excellent supply and demand growth balance.

ADR fell 2.4% in December compared to a year ago and fell 1.3% for the all of 2023. At first glance, these negative trends might seem like hosts cutting prices to attract additional demand in response to lower occupancies; however, an examination of the AirDNA Repeat Rent Index (RRI), which separates existing listings from new, shows that prices held steady in 2023, and that the declines in ADR were the result of mix shift. Listings entering the market had, on average, significantly lower rates than the existing stock, perhaps looking to cater to value-seeking travelers. This is the opposite of the situation in 2020 and 2021, when new listings were, on average, significantly larger and more expensive to book than the existing listings.

Regardless of the calendar’s impact, New York City is one the most popular and famous places to spend New Year’s Eve. Recent regulatory efforts in the city to prohibit non-owner-occupied STRs contributed to December performance, as did regulatory pushes in many large cities. 

Although every location type except coastal resorts had slower demand growth in December than in November, Large City/Urban locations had an especially abrupt decline. Large City/Urban locations were also the only location type to see fewer nights stayed than they did a year ago.

New York's Loss is New Jersey's Gain

Turning to our top 50 markets, the effect of the New York regulations is staggering. New York easily takes the lowest demand growth with an astounding -46.1%. Nearby Jersey City/Newark, which can serve as an alternative accommodation destination for those visiting the Big Apple, became NYC’s mirror image with the highest demand growth at 53.7%. Other markets were far more subdued, but Myrtle Beach (+19.9%), San Antonio (+16.6%), and Miami (+16.3%) also had notable spikes in demand.

Looking to the year ahead, pacing seems to reflect the improving economic outlook. January demand is already approximately 8% higher than the same time in 2022. After that, on-the-books demand takes off and remains between 13 and 21% higher through June. Lead times shortened in 2023, perhaps as a response to the persistent economic uncertainty. Whether demand will really be this much higher in 2024 or if renewed consumer confidence means that these pacing numbers are due to lengthening lead times remains to be seen. The most likely scenario is a mix of the two.

Two upcoming events that will influence demand growth in the coming months are spring break and the North American eclipse on April 8. Easter in 2024 will land in the last week of March rather than in April, as it did in 2023. Easter’s shift has set some spring break calendars back a bit, creating not only a small bump in February bookings for Coastal Resort locations but also a significant shift from bookings in early April to late March. The shift peaks on Friday, March 29, with booked nights 40.2% higher than the corresponding date in 2023.

As dramatic as the shift is in Coastal Resort locations, the total solar eclipse promises to have an even more radical effect on demand for Small City/Rural locations. Star-gazers have rushed to book bucolic retreats that promise a clear view of the sky. Although eclipse viewings most likely have a significantly longer lead time compared to other travel, the 225.5% increase in bookings on the day of the eclipse will almost certainly translate into much higher realized demand.

This article originally appeared on AirDNA.