“iBuyers” are gearing up to grow massively in the coming years, with unforeseen consequences for the U.S. housing market.
Oh, I think we can foresee the consequences pretty well. No homes for sale, only to rent, making the predictions of an Age of Access more accurate.
“There’s almost an arms race to get the most inventory possible,” said Daren Blomquist, vice president of market economics at Auction.com, who described the state of the iBuyer market as “almost frenzied.” “It’s less about making money off that inventory, at least initially, and more about who can get the most inventory the fastest.”
Get big fast, may the devil take the hindmost…it worked for other players (Amazon, Google) so why not try it here as well? I wonder if the investors know what this means for anyone who isn’t already on the property ladder.
It seemed like Zillow and Redfin were some kind of market research/listing service where you can see what homes might sell for, maybe even your own. But we see the game:
High-tech middlemen like Opendoor and Zillow Offers, Zillow’s home-buying platform, first inserted themselves into the housing scene a few years ago, armed with cheap money and hoping to profit off the bedrock of American middle-class wealth. iBuyers target mid-level homes that are in decent condition, offer to buy the house with cash, and make the selling and moving process quick and convenient. They then make a few repairs and quickly put it back on the market, ideally at a higher rate. In exchange, they charge the homeseller a fee that varies according to a variety of factors.
So anyone’s dreams of sweat equity or making something their own becomes a lot harder. The fixer-uppers are going and any remodel options will likely have be done to generate a quick reality show type sale. No one wants to tear out a new kitchen or master bath that the flippers put in, designed to sell rather than use on a daily basis.
As Erik Selberg told me many years ago, anyone who says they are trying to reduce the friction in some transaction is actually trying to become the friction: case in point —>
“We’re at a moment of change,” said Greg Schwartz, a former Zillow executive who now runs Tomo, a fintech startup that tries to improve the homebuying experience. Schwartz said iBuyers don’t need to dominate the overall market to become big businesses, noting that 5 to 6 million U.S. homes are sold in a typical year. “If only 500,000 of them sell through iBuying, it’s a massive, massive opportunity,” said Schwartz.
I hear messages from outfits that claim to want to simplify home buying, as if the process is why people can’t afford to buy their own homes. The process is simple but the housing market is disappearing.
(Zillow’s gross profit per home sold was $33,849 in the second quarter, according to the company.) “Putting it to scale gets very, very interesting,” [Viet Shelton] added. “Buying and selling 5,000 homes a month? It gets interesting,”
That’s $169,245,000 each month. The incentive to build new homes isn’t there if prices are rising that fast: why vote for a development that will lower the price of your home? Since cities aren’t in the housing business, there is no one to drive construction that would deflate this bubble. Any development that does get built will be a rental, not for sale, and zoning will keep it out of the affordable housing segment. There is no affordable housing without affordable land and cities control the land within their borders. They don’t have to own it: all that’s needed is the power to tax and zone it. They have that.
The inflationary pressure this will create should be obvious, but don’t take that from me: “With the growth of population, land grows in value, and the men who work it must pay more for the privilege.”