iBuyers Are Eating the Real Estate World
The new Q3 data is in, and Bloomberg, in conjunction with my colleague Mike DelPrete have revealed several concerning points, that leave me asking more questions, and wondering what the future holds for our industry.
First, it needs to be said that the Bloomberg article fails to point out one significant element. It should be clearly said that the Q3 data is not not necessarily painting a true story about ibuyers. Q3 is when Zillow ibuyer went on a buying binge – and they overpaid for too many homes too quickly, forcing them to shut down the whole operation Nov second. So we can certainly draw conclusions, but they are with an asterisk – and we should wait and see over time.
The Stat
The big number here is 18%. In Q3, iBuyers accounted for 18% of housing transitions …. nationwide. This is no longer just a big deal in Phoenix or Atlanta – it’s the whole real estate industry. People who forecasted iBuying would be a blip, or that it would fail are eating their hats. IBuying is here to stay, and will continue to gain market share, although I don’t think it will do well on edge case homes – the super unique locations, high and low end etc.
IBuying is a significant threat to the realtor who prefers to double end transactions the “old way”. Agents businesses who have not already adopted instant offer tools need to make the switch sooner than later to avoid loosing (currently about 18%) of their business next year.
The Race
Interesting to note, is that the majority of the ibuyer transactions were in non white neighborhoods at a rate of 60%.
“Race and ethnicity never factor into decisions about where or when to buy or sell a home,” Howard said in an email. “The overriding motivation is having a presence in those neighborhoods and communities where the demand for quality and affordably priced rental housing is strongest.” Follow the money – that makes sense. Its good to see them publicly make a statement about race, but the skeptic in me believes that while it may not be a filter, they may be using other methods to cherry pick homes that mirror race. I’d want to know more about the process – but these are trade secrets that will likely not be revealed anytime soon.
Should this unbalanced trend continue, it will make it more difficult for non whites to purchase homes – as the inventory is increasingly owned by wallstreet as rental properties.
Nicole Prince, a homeowner was interviewed after selling her home to an ibuyer – and felt remorse for selling it to them – but also was thrilled with the money she received. “Back in 2001, she was able to buy a modest, three-bedroom home there while earning $12-an-hour. Nicole, who is black, lived in the house for a few years, moved to something bigger nearby and kept it as a rental. Last year, Prince decided to sell and turned to the iBuyers. Offerpad agreed to pay $191,000 — far more than she thought she’d get: “I was like, ‘What?’ You couldn’t say no.”
The Outcome
I’m stating the obvious here – but if you make money selling homes on a per transaction market – and large chunks of the single family unit inventory gets sucked up and turned into rental units – that’s a reduction in transactions going forward. This is a problem. We/you need more inventory, not less.
Just like any business, the homeowner will follow her pocketbook to make financial decisions. Ethics are not at the core of the decision for either. Businesses have a fiduciary duty to do so – homeowners are just being practical. If wallstreet wants to buy homes and make money via renters, theres not really any mechanism to slow or cap its appetite. Im not yet sure how that regulation would function at this point, and have yet to hear other fully baked ideas. Perhaps renters can build wealth via fractionally owning properties that they don’t live in via blockchain? Or own shares in a property ownership entity that allows for tax breaks? There are lots of cool options. For now it’s up to the practitioners of our industry to come up with equally compelling offers for homeowners.
You raise some very interesting and valid points! When large REIT’s snap up homes by the thousands, there’s generally little to no chance these homes will ever end up in the hands of the general public again. Instead, institutions trade hundreds, if not thousands of homes in lots to other institutional investors when and if they’re looking to unwind their portfolios. 2020 was a terrific example of just how quickly investors seek safety as nearly every iBuyer in our Phoenix market immediately halted their shopping spree and cancelled thousands of existing contracts, in some cases, costing potential sellers there dream homes in the process. I hope to see bond yields get back to healthy levels in 2023/2024 to incentivize investors to keep their money invested in the stock and bond market. Because when Wall Street starts trading houses like stocks, who knows what’s in store for Main Street.