The word translated as “inn” in Luke 2:7 actually refers to a guest room in the typical Middle Eastern family dwelling of the time. The Greek word used in the verse kataluma, means a place of rest, usually a guest room. Young's Literal Translation of this verse uses the term "guest-chamber" instead of “inn”: "And she brought forth her son—the first-born, and wrapped him up, and laid him down in the manger, because there was not a place for them in the guest-chamber."

Luke also uses the same word later in his Gospel where it clearly refers to a guest room and not an inn: "Then you shall say to the master of the house, 'The Teacher says to you, "'Where is the guest room (kataluma) where I may eat the Passover with My disciples?" (Luke 22:11).

Due to the Roman census being taken at the time and the huge number of people traveling to their birthplaces available space in the guest quarters would have been scarce, but Bethlehem was Joseph's ancestral home and he very likely had relatives there.

Another fact hardly ever mentioned is that Joseph and Mary had already been in Bethlehem for some time before Mary went into labour: "Joseph also went up from Galilee, out of the city of Nazareth to Judea, to the city of David, which is called Bethlehem, because he was of the house and lineage of David, to be registered with Mary, his betrothed wife, who was with child. So it was that while they were there, the days were completed for her to be delivered."(Luke 2:4-6)

Joseph and Mary must have been staying somewhere in Bethlehem before Mary’s labour began and this would most certainly not have been a stable. Eric F.F. Bishop, an expert in Middle East culture, notes the birth of Christ probably took place in "one of the Bethlehem houses with the lower section provided for the animals, with mangers 'hollowed in stone,' the dais [or raised area] being reserved for the family. Such a manger being immovable, filled with crushed straw, would do duty for a cradle..." (Jesus of Palestine, 1955, p. 42).

Kenneth Bailey, a Middle Eastern and New Testament scholar, also supports this view: “They find shelter with a family whose separate guest room is full [or too small], and are accommodated among the family in acceptable village style. The birth takes place there on the raised terrace of the family home, and the baby is laid in a manger . . .” (The Manger and the Inn: The Cultural Background of Luke 2:7," Bible and Spade, Fall 2007, p. 104).

The idea of an ox or donkey in the house at night goes against Western sensibilities, but as Bailey comments: "It is we in the West who have decided that life with these great gentle beasts is culturally unacceptable. The raised terrace on which the family ate, slept and lived was unsoiled by the animals, which were taken out each day and during which time the lower level was cleaned. Their presence was in no way offensive" (p. 105).

Thus, a more realistic view of what occurred at Christ's birth according to the customs of the time is that the manger was in a house and not in a stable. Joseph and Mary, who had been in Bethlehem for some time, would have been living in the upper level of a typical dwelling in Bethlehem, with the animals housed in the lower level of the house at night.