Cape Cod's Rental Market Is In Trouble - What Does This Mean For Housing Prices?
Short term rentals were all the rage… Especially during Covid. During those Covid years it seemed like you couldn’t lose and the good times would never end… Buy the house and sit back and just let the money roll in.
Well… It looks like that train fell off the tracks and the party may have just ended.
Real quick, my name is Jeff Chubb and I am a recovering investment banker turned real estate agent that has sold more than 1,000 houses. If you are new to the channel then I appreciate you considering subscribing and if you are thinking about buying or selling a home… Then you should give me a call or send me an email!
Questions we are going to answer over the next couple minutes are: What’s going on with short term rentals on the Cape? And if you are an owner who has a property that isn’t reaching your expectations… Then what can you do?
We all know the story. Covid hits. People are locked up for an ungodly amount of time… They finally break the chains of the lockdowns and shift their spending habits from goods to experiences… Which included Cape Cod vacations.
And short term rental companies like Airbnb and VRBO were there for the party. Last year and the years before it, the Cape was at nearly a 100% occupancy rate. If you were an owner… It was hard to lose. This helped swell the average sales prices of properties on the Cape which thereby increased homeowners expenses to carry the property.
Check out this article on Boston.com published in February. “Strong rental availability reported for Cape Cod Summer Season.” “Last year at this point, we were about 80 to 85 percent booked for the July and August time period. This year we’re at 60 percent.”.
And he ended up being right. Check out the availability of some of these houses… And for the record, I didn’t have to look that long to find these examples!
This is a stunning house. 7 beds, 7.5 baths and close to the water.. With essentially only half of July and half of August booked… Those two months are the prime, make it or break it months! And this house could very well sit vacant.
This cute 2 bedroom cottage in Chatham was even worse. They have pretty much all of August available with all of July currently available. Keep in mind that I pulled this info on July 10th… So even if we assume that the last week was booked… That’s not a great sign of a good year for these owners.
So what is going on?
“New inventory has increased availability for what is sure to be another busy season on the Cape”. That quote is again… From February.
He also goes on to say that there was a big turn in the real estate market which increased short-term rental availability. Thirty seven percent of the housing stock on Cape Cod are second homes.
And here is the key to the additional inventory issue… “So I think as we sort of emerge from the pandemic, we’re starting to see some of those properties become available as short-term rentals.” In other words, since the world has opened and people aren’t restricted on their travel… The shine has come off the shoe and they aren’t spending the entire summer on the Cape.. Or even at all! They are now opting to do a short term rental on their house for the time they are not there.
So let’s fast forward as we are in the Summer Rental season.
This article is from the Financial Times! “At the start of June, bookings on WeNeedaVacation.com were 33 percent below their 2021 level. And the number of available short term rentals is up 18 percent over the same period.”
And here is the Business Insider Jumping in on the action. “Even as the vacation hot spot enters its busy season, locals are seeing the demand for vacation rentals soften. The occupancy rate is down 20% from last year.”
Airbnb still has more than 1,000 listings available for a week in July or August while VRBO lists several hundred properties.
Check this place out! 3 Bedroom, 1 bath house in Sandwich. This owner has reduced their price by nearly 19% from $249 a night to $202 a night. Hopefully that will make a difference with nearly three weeks unrented in August and two in July!
Or this 3 bedroom, 2 full bath home in Bourne that goes for $315 per night. They only have one week booked in August. July wasn’t as bad as it looks like they have a week and a half booked! But that is not good…
Not a whole lot better for this 2 bedroom in Hyannis for $399 a night. They have the rest of July available with 12 nights in August booked. Again, this is the prime time for Cape Cod rentals… Think Boom or bust!
Here is what is a little crazy. Even with this lack of demand, owners are still pushing prices higher. And this ends up lowering demand. It is said that the average daily rate has climbed to $619 from $525 last summer.
But it could be that these owners are caught in the classic catch twenty two. Expenses are going up, so that means that rental rates have to go up, right?
Well the Financial Times talks about a homeowner named Rob who bought his latest rental home in 2021 in Centerville. He estimates that running costs have increased between 40 percent and 50 percent in the last year.
Costs are up. The amount of rentals is down. The people who bought in 2022 and 2023 who have locked in the higher interest rates seem to have been late to the party and must be taking a bath right now…
I mean… This place looked awesome. 2 bedrooms that are waterfront on a beach with a hot tub. Sign me up! $435 per night. And if you also think it's awesome… Then you can pretty much pick any day you want for the rest of July and August… WIth the exception of 4 days in August that is. You are seeing that right. This place has no rentals booked with the exception of 4 days for the rest of the summer!
And this 2 bedroom, 2 bath in Mashpee doesn’t fare much better. Heck, they even have in their description “Discount July and August Rates!”. At $375 per night, they currently have 5 days rented for the rest of the summer. 5 days. If this place has caught your eye, then you have the run of the mill… Pick any day from now until the end of August that you would like. Actually… Until the end of October. Because there are no bookings currently leading all the way up to the time they close down the house at the end of October.
I think we have effectively highlighted the issue. There are a lot of owners who aren’t getting the rents and the revenue that they need in order to carry the property until the next Summer season. Hopefully these owners have a war chest of reserves and are able to pay the mortgage payment and carry the property for the next 9 months… Otherwise, there could be some issues brewing on those sandy beaches.
And the issues could compound and get worse and worse the longer a troubled property owner waits. This could be the beginning of a doom loop. Click Here to view all Cape Cod Homes For Sale
So what is a doom loop and what are the options for a property owner right now?
Quite frankly, the options are limited.
The first option is to grin and bear it. Carry the property paying the mortgage and its upkeep bills while hoping and praying that next year will be better. And while hoping it is better, that homeowner may need to consider doing some updates to the property or increasing the properties exposure through additional marketing… and even cutting the price next year to ensure that they have the demand to carry them through the season.
The second option is renting the property for the long term. This can be tough to do as there becomes a LOT of competition from landlords looking to get anything to help cover costs for the 6 to 9 months in the Fall through Spring. It’s almost a race to the bottom… And I expect that market to be even more flooded this year.
The third option is selling… And preferably not at a loss. Which is where the rub may come. With this many vacant rentals, I expect there being more property owners who need to sell this Fall. The longer you go into the Fall market then most likely the more listings that you will see come on the market. And thereby the more competition that a homeowner will have. More competition equates to lower prices… Especially when you have some homeowners who NEED to sell. Homeowners that need to sell may be willing to cut their losses and sell at breakeven or even at a discounted price in order to get out of the hassles of the investment. This puts downward pressure on pricing which in turn creates the doom loop. Dare I say that we could see some short sales? Dare I say there could be some great buying opportunities down there?!?
In other words, the sooner the better for a property owner who is looking to get out of the short term rental game. If you bought in early, then you most likely have some equity to play with. If you bought on the Cape in the last year or so… Well then we may have to be a little more strategic and figure out the best course of action.
If you are a homeowner that is going through some hard times or just tired of the short term rental game, then reach out. I am happy to talk. Having sold more than a 1,000 houses… I have dealt with this type of situation time and time again. It’s a tough spot to be in. And there isn’t a blanket answer for what is best. But knowing your options is of the utmost importance.
You can find all of my contact information in the description below or you can reach me at YouTubeRealEstateAgent.com.
Until next time.