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How Much Can Airbnb Damage the Mortgage Market?

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(Bloomberg Opinion) -- Airbnb Inc. is raising a war chest to get it through the coronavirus pandemic.

Last week, the home-sharing company announced a $1 billion debt and equity deal from Silver Lake and Sixth Street Partners, with the second-lien securities reportedly offering an 11% to 12% interest rate. It turns out Airbnb was only getting started: This week, it secured commitments for a $1 billion syndicated loan from a group of more than 20 investors, including Silver Lake and more traditional money mangers like BlackRock Inc., Eaton Vance Corp., Fidelity Investments and T. Rowe Price Group Inc. According to people with knowledge of the situation, the funds could help Airbnb make it through this economic downturn without going public and might open the door to acquisitions.

“All of the actions we have taken over the last several weeks assure that Airbnb will emerge from the storm of the pandemic even stronger, regardless of how long the storm lasts,” Brian Chesky, Airbnb’s chief executive officer and co-founder, said this week. On March 30, Airbnb announced that it was pledging $250 million to help support hosts impacted by cancellations. “We know a lot of people are facing serious hardships right now, and we’re working around the clock to help you. Our $250 million USD support will come entirely from Airbnb at no cost to the guest, and we hope you’ll accept it as a show of commitment to our hosts.”

This backstop apparently divided the Airbnb community. In a March 31 article, Curbed quoted the woman who runs AirHostsForum as saying “the hosts who were more experienced felt Airbnb had no obligations to hosts,” while newer ones thought the company “needed to do something to rectify the situation.”

Airbnb is the most prominent company that exists squarely in the cross-section of the travel industry and the mortgage market, two areas particularly targeted by the coronavirus outbreak and the ensuing economic shutdown. Without question, the company-specific carnage is bad enough: The Information reported that Airbnb projects revenue will drop to $2.2 billion this year from $4.8 billion in 2019. Airbnb’s valuation is likely closer to $18 billion, from $31 billion in 2017. The company’s board is intensifying pressure on Chesky to cut costs.

The question that’s difficult to quantify is just how much damage a collapse in the Airbnb economy could cause to the $16 trillion U.S. mortgage market.

The anecdotes on social media immediately spread like wildfire. Many centered on the idea that so-called “superhosts” — those who consistently meet certain thresholds including near-perfect ratings, a large number of bookings and infrequent cancellations — have taken out mortgages on several properties, banking on Airbnb income to cover those payments. Now with little to no cash flow, they’ll soon default on those mortgages, the thinking goes. In large enough numbers, that would bring about a reckoning.

This is a compelling narrative. After all, a quick online search reveals articles such as “HOW TO MAKE MONEY WITH AIRBNB (OVER $10,000 PER MONTH!),” which comes from a millennial Ohio State graduate who lives in Los Angeles and manages nine listings in Columbus. It includes advice such as “by leveraging your debt capacity, you will be able to effectively invest more money than you would otherwise be able to.” If newer hosts were the ones clamoring for Airbnb to offer support, maybe they’re the most overleveraged.

Backing up these anecdotes with any sort of hard data is the tricky part. My Bloomberg News colleague Christopher Maloney suggested I focus on trends specifically in investment property loans, which tend to have higher interest rates and larger down payments than traditional owner-occupied residences. In theory, a surge in investment properties could at least partially indicate some speculative activity in the market. More specifically, any uptick in single-family investment property loans could represent Airbnb superhosts, as opposed to multi-family loans, which are more strictly the domain of traditional landlords.

Data compiled by FHN Financial and CPRCDR paint a mixed picture. At the very least, it casts cold water on the idea of rampant speculation the likes of which could topple the entire housing market.

It’s true that the unpaid principal balance on 30-year mortgages for investor property has increased over the years. It doubled from 2003 to 2008 before plateauing in the wake of the 2008 financial crisis at about $150 billion. It then picked up during the economic expansion, reaching almost $250 billion most recently, though it never quite grew at the same pace as during the housing bubble.

However, investor property loans as a percentage of all 30-year mortgages have declined in the past four years, to less than 7%. From 2011 to 2014, the share climbed from 5% to almost 8%. That roughly coincides with a huge jump in the number of guest stays through Airbnb as well as new hosts: A TechCrunch article from December 2013 declared “this is what hockey-stick growth looks like” in describing the company’s trajectory. It’s not a perfect correlation — Airbnb certainly kept growing in the following years, while the investor property share stagnated — but it’s not bad. Still, the fact that the uptick didn’t last through the expansion raises doubt about the prevalence of spread-thin superhosts.

Again, it’s difficult, if not impossible, to track down data that pinpoints mortgages taken out with the intent to list the property for short-term rental. This data, though classified as single-family investor property, includes two-, three- and four-family housing. The overwhelming majority of single-family mortgages are in fact for one family, but it’s possible investor properties skew toward more than one. And, of course, this is not to minimize the potential financial stress on hosts who were counting on the extra income from renting a room or a guest house to pay the mortgage on their primary residences.

Yet even if we assume the supposed worst-case scenario of thousands of superhosts with dozens of properties suddenly unable to pay those mortgages, it’s ultimately just a drop in the bucket. Data from the Consumer Financial Protection Bureau show more than 4 million mortgage loans were originated in 2017 for a purchase of a one- to four-family dwelling, either owner-occupied or not. Thus, Airbnb’s own package might go a ways to bridge its hosts’ lost revenue.

And, if we’re being honest like my Bloomberg Opinion colleague Lionel Laurent, dialing back the Airbnb economy might not be so terrible. The demand boost has helped exacerbate housing shortages in large global cities and inflated real-estate prices across those metropolises. It’s a vastly different situation from extending subprime mortgages to virtually any American living anywhere and creating complex derivatives tied to those loans. Generally, those who take out investment property loans have strong credit: J.P. Morgan Mortgage Trust closed a transaction backed entirely by investment property loans earlier this year, and the average FICO score was 761.

It’s an open question whether Airbnb will successfully bounce back from the coronavirus pandemic, or whether these months of sheltering-in-place will forever change people’s behavior. But there’s simply not much that indicates investment properties will quickly push the mortgage market into the abyss. Open the economy again in a safe and sustainable manner, and the payments will most likely sort themselves out.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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