By Douglas Katz – 11/15/2022
It is no secret to people in the industry. When real estate was really hot, the siren’s song of investment and flipping was pretty hard to resist. Many large players could not resist this and rushed headlong into the investment market to exploit the opportunity. The problem is that sometimes things do not work out and the market does not cooperate. This appears to be one of these times and while a lot of small players sat the boom out on the sideline, the larger players went on a acquisition binge and are now left holding the bag.
The contagion started with Zillow several months ago and they bath that they took on Zillow Offers with over $420 million. Apparently, they were ahead of the game as other entities are now following suit. Business Insider reported today that Redfin, Opendoor and iBuyers have all announced their reduction and/or exit from the flipping space. Per the article, Redfin alone is sitting on another $350 million in real estate that the are looking to unload. There were no numbers from Opendoor, but it is not likely insignificant. This should make for some interesting impact on the housing market.
First and foremost, this will bring more inventory to the market. I would anticipate that the aforementioned properties are not evenly distributed around the country, but any bit helps and many of these were likely in the hotter markets with the best after rehab values. None of these organizations have announced tools on their platforms to find the properties, but this could be a possible strategy. The inventory will help, but the benefit could depend on awareness of sellers and their agents and if they stay ahead of the curve and sell before the deluge.
If they do not stay beat the rush, sellers could be blindsided with value issues. Most if not all of these companies have said that they will discount, sometimes heavily, the real estate that they are holding in their portfolios. Any time any of these sell, they will contribute to establishing the valuation in a market area and I would not expect that any of their analysis is based on the collateral damage to values in areas where they are selling. Remember appraisals are based on like properties sold most recently in a certain area. There are no dispensations for issues like a dump of properties any more than the foreclosure boom after 2008. I have seen this happen before, so I do recommend building this possibility into any analysis.
While maybe not the greatest news for sellers and homeowners, buyers and investors could see their patience rewarded. For years, there has been an inventory problem. This has presented more than a drag on the housing market. A slew of discounted properties hitting the market will not change everything and it could be gradual, but it should help. These should represent some good deals that either fit within a buyers budget or represent good return on investment for an acquisition. Either way, it does represent a signal to me that both type of buyers should get their funding squared away as the properties may move fast.