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The Ups and Downs of Vacation Rental Rates

 In Real Estate / Home & Garden, Winter 2025

Are We Pricing Ourselves Out of the Market?

By Ann Wood | Photos courtesy of Joe Lamb, Jr. & Associates

Vacation rental home pricing on the Outer Banks has risen, and occupancy overall has flattened, but oceanfront homes with pools like these are always in demand.

It’s how thousands of people vacation on the Outer Banks every year. Gather their friends and family, rent a home, prepare some meals in the kitchen, and share the cost amongst their group to make their vacation affordable.

However, lately we have seen an increase in comments made by loyal rental guests that the rates of their favorite rental home has been priced so high that they can’t afford it anymore. What is going on with the rates on the Outer Banks? Are we pricing ourselves out of the tourism market?

The business of vacation rentals has exploded since 2020 when the world took notice of vacation rental homes as being ideal for social distancing. You could enjoy time away with your people and feel safely separated from the general public. And of course, the Outer Banks was perfectly poised to be the epicenter of this phenomenon with our miles of pristine beaches, sprawling parks, and thousands of well-appointed rental homes.

In the two years following the reopening of our bridges during Covid, the Outer Banks saw record visitation. Demand for a vacation in our slice of beachy heaven – just a packed SUV ride from home – was on the rise. Data retrieved from Key Data, the leading provider of short term rental market data, shows an occupancy increase of 13% from July 2019 to July 2021. While we know that the Outer Banks is normally booked at near full capacity in the peak summer weeks, what is really eye opening is the dramatic increase we saw in spring and fall occupancy.

Key Data shows that rental home occupancy on the Outer Banks increased from an average of 44% in May 2019 to 77% in May 2021. Those increases could be seen in both spring and fall, extending our busy season by nearly 6 months.

And as we learned in high school, given a constant level of supply, and increased demand, prices are likely to increase — and increase they did.

Average daily rates of vacation rental homes on the Outer Banks, which is a common metric used in the vacation rental industry for measuring and comparing rates, increased on average 34% from 2019 to 2024. The increase was even greater for large homes with 8 or more bedrooms seeing an average 42% increase since 2019. In many cases, that is an increase of thousands of dollars.

During this time, we also saw record numbers of home sales. With social media influencers promising passive income for homeowners to list their properties on Airbnb, and property management companies distributing sky-high rental projections, the bandwagon was getting full. The supply of short term rentals increased right along with the rates.

Eventually, changes to supply and demand will cause a shift in the market. And in 2023, we saw a shift begin to occur. Competing travel destinations re-emerged as people were becoming comfortable again with international travel and cruises. The rise in Outer Banks rental rates was too much for some to bear and they began to look elsewhere for a more affordable vacation.

Data shows that occupancy in rental homes has decreased each year since 2022, by nearly 3% in 2023 and another 1% in 2024, on average. 2023 and 2024 have shown us that the market is stabilizing, and demand is settling back to what people in the rental business call, ‘return to normalcy’.

Photos courtesy of Joe Lamb, Jr. & AssociatesKey Data presented a report at the OBX Tourism Summit in November, showing occupancy and rate data for Dare County short term rentals. According to their reports, the average daily rate for short term rentals in Dare County was mostly flat in 2024 compared to 2023. However, we saw a drop in occupancy. In theory, if your rates are increasing and occupancy is increasing, your revenue increases. But when you have a reduction in occupancy, and flattening of rates, you’ll see a flattening in revenue, which is what we are seeing in the data this year.

With these dramatic up and down shifts in demand and supply, managers have needed to better equip themselves with market data to maximize their revenue in the upward trends and better inform and educate their homeowners during the downward trend.

Historically, property managers would set rates annually. The rates were based on weekly segments of demand in the bell-curve season we traditionally see on the Outer Banks with the highest weekly rates being in July. These rates were set and published in a rental guide and wouldn’t change except for special promotions and house by house discounting to fill vacancies.

Sites like Airbnb and Vrbo with their flexible stays and nightly rates have disrupted this traditional model as guests began using these sites regularly. They became accustomed to searching on their preferred site for a property, anywhere in the country they were traveling. They expected to be presented with a variety of options, each offering similar flexibility and policies. The process by which someone could find and book a home was becoming homogenized.

Many local managers reacted to this market shift by adjusting their business models to suit this new renter. We have seen length of stay requirements becoming more flexible with the offering of short stays and nightly rates. This new flexibility opened up the possibility for adjusting rates in a manner similar to hotels, where rates are fluid based on demand, competition data and suggestive algorithms.

PriceLabs is one of these dynamic pricing and revenue management platforms for vacation rentals. Their platform helps property managers, homeowners and Airbnb hosts adapt to market trends, save time, optimize revenue and occupancy, and provide actionable insights. The premise of this type of rate management is that maximizing rental revenue in today’s dynamic market requires more than just intuition — it demands data-driven strategies.

Pricing tools like this enable a manager to sync their properties from their management software or their listings from Airbnb to see what similar properties are renting for in their local market, and when. Then the manager can input a set of rules and parameters and either allow the software to automatically make adjustments to rates in real time, or manually adjust based on the software’s recommendations. This can be very helpful in today’s fast-paced marketplace, but it can also cause problems if left unmonitored.

Not all rental managers have employed dynamic pricing algorithms to assist them with setting rates. Companies like Joe Lamb, Jr. have taken a more traditional but proactive approach to rate setting and have involved their homeowners in the process.

Dan Hardy, President at Joe Lamb, Jr. expresses his concern about allowing automations to control pricing. “Dynamic pricing is okay when demand is high and rates are going up, but don’t set it and forget it with automations – you’d better watch it, or it could misinterpret the data and you could end up with rates either too high or too low.”

Dan went on to explain how they managed the rate shift, “When the demand started to stabilize, we modified our rates early in 2023 – with homeowner permission. We give our owners the opportunity to look at our recommendations and discuss them. We don’t want the home to sit empty, so we are up front with them about what we are seeing.”

Another problem that homeowners are experiencing along with a potential reduction in revenue is that their owner costs are increasing. Homeowner’s insurance, building costs, appliance and furnishing replacement costs, among others, have all skyrocketed.

Dan empathizes with his homeowners, “There has to be a balance. But that is difficult for them when their costs are up and then we recommend lower rates, or they don’t see as many bookings as prior years. We have to show them that their overall revenue can still be up, just not what it was at the peak of Covid.”

How does a leveling off of demand and a potential drop in revenue affect other aspects of the real estate market? We saw a boom in home sales in 2020-2022, many new owners having high earnings expectations. Are owners of underperforming short term rentals ready to go back on the market for sale?

According to Vanessa Watson, Real Estate Broker at Coastal Carolina Vacations and Sales, “We haven’t yet seen the reduction in rental revenue impact the sales market, but we should begin to see listings from people who bought and aren’t seeing the expected return, especially homes farther from the beach or smaller homes with fewer marketable amenities. The numbers won’t be sustainable for them, and we’ll see homes go back on the market. Unfortunately, they aren’t likely to sell for the buyer’s initial purchase price.”

And how has the guest experience and overall sentiment of Outer Banks Visitors weathered the rise and leveling of demand? Back when visitation was booming in 2021 and 2022, many businesses struggled to staff up for the increased demand. The demand for rentals caused a shift in housing, leaving many long-time locals without long term rentals and no option other than to leave the area. Short-staffed services could have a negative effect on guest experience and have the potential to damage the Outer Banks brand.

The Outer Banks Tourism Board hired Digital Research Inc, a marketing research firm, to conduct a visitor sentiment study from Sept. 2023 to August 2024. Results from that study show that people are frustrated by rising costs in general, but their love and affinity for the Outer Banks remains as strong as ever. There is good news. 66% of the respondents said they were satisfied with the relative cost of their Outer Banks vacation overall. And only 14% of the respondents said that they would not consider returning to the Outer Banks because it’s not affordable. The quality of their experience is their most highly influential factor, and they were happy with their experience overall.

Lee Nettles, the Executive Director of the Outer Banks Visitors Bureau explains the current visitor dynamic this way, “Guest sentiment and regard for the Outer Banks remains high. However, concerns over rising costs does imply that we’d be wise to remind visitors of the solid value of vacation rentals and the destination. We could direct their attention to the free or low priced experiences available on the Outer Banks. Some companies may want to create travel packages to bundle experiences making it easier for guests to purchase. There’s perceived value in doing so.”

Dan Hardy agrees with Nettles’ optimistic assessment, along with a caveat, “We are optimistic for a good 2025. In general, we are better off long term if rates are set at a fair price, and guests feel they got what they paid for. If rates are set too high just to make money in the short term, guests feel like they paid too much and don’t come back, or they complain and don’t recommend the area to their friends. That has the potential to hurt the Outer Banks reputation long term.”

Chris Murphy
Author: Chris Murphy

Chris is a creative force with a passion for writing and web design. As Web Creative Director at VistaGraphics, Inc. and VistaDigital Agency, she leads a team of digital experts in crafting stunning, user-friendly websites. When not immersed in her web development responsibilities, she enjoys writing articles for various in-house hospitality publications and exploring the Virginia outdoors with family and friends.

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