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I don’t know about you, but over the last few years, the conversation at just about every barbecue or dinner party inevitably turns to how high real estate prices have become.

And just as quickly, the blame is laid at the feet of Airbnb — the online short-term rental company that enables homeowners to rent out spare rooms or entire homes, giving travelers alternatives to traditional hotels and motels. [See “How to turn a home into an Airbnb rental,” in the October 2023 Beacon.]

What’s that have to do with home prices? Some investors snap up properties to use as Airbnbs, edging out ordinary home buyers — such as those itching to buy their retirement dream home — and contributing to the affordability crisis.

Deals may become available

That may be about to change. A few months ago, a tweet by Reventure Consulting CEO and housing analyst Nick Gerli went viral when he suggested that Airbnb revenues had fallen off a cliff. “The collapse is real,” Gerli tweeted.

According to him, hot markets like Phoenix and Austin are particularly hard-hit. If true, could this mean disillusioned Airbnb hosts will start dumping their properties, creating buying opportunities for frustrated home buyers?

Exorbitant housing prices have forced many Americans to put off buying the retirement home of their dreams. The S&P/Case Schiller U.S. National Home Price Index is up 41% since March 2020, when the pandemic first hit.

Obviously, there are a lot of factors that have contributed to the housing unaffordability crisis, and Airbnb is just one of them. By some estimates, short-term rentals contribute only 1% to 4% to the overall real estate price increases.

Still, forced selling in some very desirable markets could lead to deals, and buyers who’ve been on the sidelines could soon have a good opportunity.

But before you leap, make sure you understand the dynamics of today’s real estate market. Things may have changed from the last time you were a property buyer.

Here are a few things to consider:

High mortgage rates

Cheaper home prices are great for real estate buyers. But they’ve been coupled with much higher mortgage rates, which in many cases negate any savings on price.

The national average for a 30-year fixed-rate mortgage in mid-December was 7.48%, nearly three times the 2.5% mortgage rates we saw in 2021. The last time rates were this high was late 2000.

Given that it took more than 20 years for mortgage rates to reach this point, it may be a long time before interest rates fall below 3% again. You could miss out on deals if you’re waiting for lower interest rates.

When interest rates are this high, I advise clients to avoid debt whenever they can. I realize that most people can’t buy a home without a mortgage, but taking on debt for a second home or a vacation property is another thing entirely.

Think about it: If you’re paying over 7% for a mortgage, you’d have to make more than 7% on your investments to make it worthwhile to borrow. That’s an awfully high hurdle that I’m not sure this market can support.

Cash is king

On the other hand, you may be sitting on a pile of cash just waiting for the real estate market to come back down to earth.

Maybe you sold a home not too long ago and banked the proceeds. Or perhaps you’ve been saving for this goal and can pay cash (or make a significant down payment). If that’s you, this could be your time.

Being able to buy a home with cash can also make you more attractive to sellers during the buying process. You might be able to close faster than buyers who need to get a mortgage — putting you in a position to negotiate a cash discount.

The combination of potentially more housing supply and higher interest rates could be keeping other buyers away, also reducing your competition.

Rent out your second home

Some of this talk of Airbnb’s demise is hyperbolic, for sure. I still think, for some people, renting out a home to short-term renters can be a lucrative way to supplement retirement income — as long as you do it right.

For starters, I wouldn’t recommend buying an overpriced property and taking out an expensive mortgage to pay for it. If your bookings are less than you anticipated, you’ll have an unsustainable financial burden.

That said, being an Airbnb host can be a good way to bring in some additional income or offset the cost of a vacation home. In fact, Airbnb reports that a quarter of its hosts in the U.S. and Canada are retirees.

If you’ve owned your property for a long time and don’t have a high monthly mortgage payment, you won’t be under the same financial pressure to rent out your place.

Just bear in mind: If your property is in a location with a distinct vacation season — like the beach in summer or a ski resort in winter — you may be more able to rent it out at the very time you want to use it yourself. You have to ask yourself what’s the point of owning a vacation home if you can’t enjoy it during prime season.

Plot your next move

Predicting real estate prices and the direction of interest rates is never certain. Who could have predicted that [coming out of] a global pandemic would lead to soaring inflation and out-of-control real estate prices?

Still, it’s smart to watch where things are headed. Maybe after 11 interest rate hikes, housing is ready to cool, and a drop in Airbnb bookings could lead to more properties on the market.

If you’ve had your retirement real estate dreams dashed time and again in this overheated market, this could be your opportunity. Just make sure you’re realistic about what you can afford and how you’ll pay for it.

© 2023 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.