The Predictive Daily #12324

Author

Justin Beasley
December 03, 2024

TUESDAY TREND
Interest rates are they key to housing demand 

Will mortgage rates have a Santa Claus rally?

Despite initial concerns that tariffs would push mortgage rates up to 8%, this week has brought some encouraging news.

www.housingwire.com/articles/will-we-see-a-santa-claus-rally-in-mortgage-rates

6%: The Benchmark for Market Momentum

As we approached the end of Q1 2024, it became clear that the “beginning-of-the-year surge” many anticipated had more to do with the cost of capital than seasonal market trends. At LOCAL Realty Group, we experienced a remarkable shift, clearing a majority of our inventory in just three weeks. But this was followed by a sharp increase in time on market.

What changed? Mortgage rates climbed beyond the critical 6% threshold, and as rates edged higher, we saw a corresponding rise in both inventory levels and time on market. This aligns with data from a recent HousingWire article, which offers further insight into the impact of interest rates on housing activity.

Purchase Applications: A Rate-Driven Rollercoaster

HousingWire highlights a clear trend: mortgage rate fluctuations have a direct impact on buyer activity. When rates rose to 6.75%-7.5%, purchase applications dropped by 14%. Here in the Smokies, inventory levels soared to a 13-month high earlier this year.

However, mid-June brought a welcome change. As mortgage rates began to decline, purchase applications rebounded, increasing by 12%. Inventory levels have since followed suit, experiencing a gradual but steady decline. Currently, inventory stands at 9.5 months—a marked improvement, but there’s still room to stabilize.

“With two years of data, we observe a positive growth trend in purchase applications when mortgage rates approach 6%.”

Housingwire

What This Means for Smoky Mountain Investors

Interest rates in 2024 had a substantial impact on the Smoky Mountain sales market. The cost of capital increased, time on market has steadily risen, and inventory levels spiked. In the midst of all that, prices held steady. We are just now seeing any noteworthy changes in pricing, and given the recent and projected improvements to the interest rate environment, we expect 2025 to look similar to Q4 2024 in both market trends and data. Honestly, I am fine with this.

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MONDAY TREND
Billions are getting invested into the travel industry  

17 Travel Startups Raise $636 Million in 3 Weeks

Travel startups have raised nearly $1 billion so far in November. That includes 17 that raised nearly $636 million in the last three weeks. 

skift.com/2024/11/29/17-travel-startups-raise-636-million-in-3-weeks

Why This Matters for STR Owners

The economic impact of short-term rentals (STRs) cannot be overstated, and investors have taken notice. The significant flow of capital into the travel industry highlights the growing recognition of STRs as a key driver of economic growth.

STRs Are Boosting Local Economies

One of the most notable contributions of STRs is their ability to revitalize local economies, particularly in areas struggling to generate new revenue streams. In Tennessee, for example, Airbnb began automatically collecting local occupancy taxes in 2024, resulting in substantial financial benefits. Davidson County collected $34 million, while Sevier County brought in $33 million in occupancy taxes. These figures underscore the transformative impact of STRs on local budgets.

This success has also influenced legislation. The State of Tennessee recently passed laws broadening the definitions of eligible STR properties, enabling more properties to enter the market. These changes demonstrate that STRs are here to stay—not just in top tourist destinations, but across the state.

Professionalism and Competition Are Key

The recent surge of investment into the travel sector reflects an increasing demand for higher-quality experiences. For STR operators, this means rising expectations in areas like customer satisfaction, response time, reviews, and overall professionalism. As booking platforms become more competitive, operators must prioritize these metrics to succeed.

For investors, this represents an opportunity, but for STR owners, it’s a wake-up call. The travel industry is evolving rapidly, and so too must the STR market. Operators who fail to adapt risk being left behind in a space that increasingly resembles traditional hospitality businesses in terms of service and expectations.

A Call to Action for STR Owners

The influx of investment into travel and STRs serves as a powerful reminder: STRs are businesses, and successful operators must continue to innovate and improve. By focusing on professional standards and exceptional guest experiences, STR owners can thrive in this dynamic, competitive market.