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We’ve written quite a bit about the seizing up of credit lines, what happens to your mortgage and credit card debt, and how Airbnb may face an existential crisis moving forward. This is another chapter in that book and focusing on Airbnb and real estate in America. Marketwatch sat down and interviewed the CEO of Redfin, Glenn Kelman, and towards the end of their discussion the conversation pivoted to Airbnb’s impact to the secondary housing market and the possible deurbanization of America. I found it particularly interesting, and since many readers are fans of Airbnb I thought lend my thoughts.
Airbnb causing secondary housing/vacation real estate markets to collapse
We touched on these same issues in our article about Airbnb Superhosts, who are highly leveraged, facing an immediate cash crunch. Kelman speaks to this effect, and what it’s going to do to those housing markets. It ain’t good. Compound what Kelman is saying below with the new stringent lending requirements we spoke out in our bubble article, and I think there is some housing trouble a brewing.
Kelman: Toast. Those are going to be in tough shape. There’s a whole economy that was built around the liquidity there that Airbnb provided. You could get pretty deep into debt and still have somebody pay your mortgage every month because Airbnb and other travel websites were so good at finding someone to rent it out. And I don’t think many of those folks have the reserves that Marriott MAR, -4.35% or that Hilton HLT, -4.58% does.
Investors who own Airbnb properties are looking for immediate liquidity. At some level it’s Redfin, Zillow Z, +5.69% and Opendoor picking up where Airbnb left off. If they can’t get cash flow through one website, they’ve got to sell it through the other.
Deurbanization…is it legit?
I currently live in LA where the cost of living is egregious. Why? Because my main career goal is in the entertainment industry ( acting ) and the vast majority of big projects are cast in the city. Over the last few years the advent of putting yourself on tape for an audition has made my travel business a real possibility – there are few trips where I’m not putting myself on tape for a project in hotel room or quiet business center meeting room.
What I’m currently hearing, and it correlates to what Kelman iterates below, is that many of the face to face auditions will be avoided in the foreseeable future. I’ve grown to love self taping because I can choose the exact take that I want to submit vs going into a room to audition, hearing the person before me, endure a crowded waiting room of egos and nerves, etc. If I don’t have to be in LA full time to advance that career path…I’m not sure I will. My fiancee is already under contract for a gig in London and we could easily move our homebase to be nearer my family in Indiana, pay a mortgage that’s less than half our rent, save on income tax, and go to LA for several weeks at a time throughout the year for meetings. It would actually free up a lot of capital to build my travel business alongside my acting career, but create a higher standard of living for us. Kelman speaks of the same situation but in terms of Goldman, Amazon etc.
MW: Some have suggested that the coronavirus pandemic could lead to a migration out of major cities, especially ones like New York that were hit hard by the outbreak. What’s your take on this?
Kelman: It’s on like Donkey Kong. There’s going to be a major move. That was already underway just because of the affordability crisis. People are leaving New York for Philadelphia and are leaving San Francisco for Sacramento and even Phoenix. Seattle was starting to lose people to Tacoma, which is just down the street.
I think some of it is about consumer wariness where we’re living in close quarters with other people. But most of it’s about employer flexibility. Employers that were really stuck on whether to let people work from home have gotten completely unstuck. And if you can work for Goldman Sachs GS, -0.48% , but not in New York, if you can work for Amazon AMZN, +1.61% , but not in Seattle, well, why would you pay the premium?
Personally I think we are forging ahead into one of the most precarious economic times this country has ever seen. Travel has become something that was nearly a weekly event for me, and I’ve had the privilege of flying over 100k miles a year since 2015. I see the industry changing a lot, and it’s why I’m starting to pivot content a bit. I truly love this blog, writing, and interacting with you ( well most of you 😉 ).
This blog focuses on points and miles, but my degree is in business with a finance emphasis, and I’ve always looked at the “hobby” as a way to de facto currency trade. I’m going to be publishing more articles that have financial emphasis, favoring stories that relate to travel, but come at it from a perspective of someone who loves travel and can speak about the market. I hope you enjoy some of these posts as it’s a way for me to create commentary while travel is stunted, hopefully share some insight, and entertain with more diverse content.
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