Real Estate

Here’s a look at a post-iBuyer housing market

Arizona was once a hotbed for iBuyers –– Here's what it's like while they're on "pause"

As we enter into really our third full week of the new normal, I have been fascinated by the steady stream of predictions and pontificators out there. 

Mary Frances Coleman
Mary Frances Coleman, Columnist

Most of the discussions have been questioning whether the industry and markets as we knew them are ever going to rebound. Others have centered around the obvious euphoria that many agents and brokerages are exhibiting now that the iBuyers have halted iBuying.

To that extent, I decided to take a look at the data in my marketplace which is predominantly Maricopa County, Arizona, to see if there are any true signs that the market is shifting.

A market snapshot

Understand that we are really only looking at a tiny set of numbers. There is not enough historical information yet to truly analyze what is happening or even theorize about what is to come. But here is what I can tell you.

The Arizona Regional Multiple Listing Service (ARMLS) of which I am a dues-paying agent member, posts “hot sheet” numbers on the dashboard page. For those who do not know, this term harkens back to the olden days when listings were printed in books and delivered to offices weekly with updates on the status of properties. You remember. When the consumer needed the agent to find out information on what is for sale and what closed escrow. The “hot sheets” were printed and distributed to fill in the gaps between printings.

As of Monday, there were 1180 new listings taken within the past 72 hours. During that same time period, 417 new offers were accepted but continuing to accept back-up offers, 63 additional offers were accepted with a contingency, and 678 properties went straight to pending sale. 

Out of 17,545 listings, 6,748 are pending. Oops, in the past hour now 6,759 are pending.

More than 1,400 contracts closed escrow between Match 25 and March 30, and two of those days were the weekend!

While those seem like great numbers and a strong market, let’s look at the flip side.

During these same 72 hours, 159 listings canceled, 196 went temporarily off the market, and 77 went into the new “delayed” listing status which is the result of the NAR “coming soon” vote. Don’t get me started…

So what do these numbers really mean?

The snapshot here is why it is so important to understand how numbers can be misleading.

For those in markets that aren’t as robust as the market covered by ARMLS, these are terrific numbers. But compared to the beginning of the month –– which is not even enough time to have an accurate measure of information –– these numbers could show a trend.

From March 1 to March 15, there were 12,969 current active listings. That’s about 5,000 less than there are now. So, are more people listing their house now, or are there fewer buyers, keeping the active listing numbers high?

There is some argument that the withdrawal of the iBuyer market has accounted for a rise in properties being listed. If there are no iBuyers to give a seller an offer, perhaps they will go the traditional route and list. 

For more on that, I reached out to Tina Tamboer, senior real estate analyst for The Cromford Report. We spoke about the current conditions, and she agrees that there is hardly enough data to analyze.

However, we did connect on some very important points that provide some insight into the iBuyer withdrawal and the potential benefit or harm.

“I believe the iBuyer marketplace is grossly overstated in its market share by some people,” Tamboer said. “True market share for flip investors is only calculated on the acquisition side. If iBuyers left the market completely, the Greater Phoenix marketplace (not ARMLS…because iBuyers purchase outside of the MLS) would only drop about 4% in total sales volume because they’re just a middleman between the seller and final buyer.  The final sale would still happen without them.”

That’s significant to understand because Arizona is a hotbed of iBuyer activity. We have all of the recognized programs like Opendoor, Offerpad, Zillow, Redfin, and some of the non-national programs like 72 Sold and Doug Hopkins, both of which tell potential sellers that they can submit their property and get a quote for purchase.

This interesting distinction allows for some data crunching over the next few weeks. The iBuyers have cited concerns for the safety of the community as reasons for halting their purchases. However, that doesn’t really answer the question of why some are canceling the current contracts for purchase. Those could still happen, but they are falling out right and left.

Here’s why: They don’t have the money. Most of these companies are funded by Wall Street and venture capitalist money. No sector of the market has been hit harder than Wall Street. Investors are simply closing up shop right now and protecting what money they do have.

Those same investors are not buying rental properties as investments through REITs and other funds. So now we are faced with these gigantic companies, blowing through cash to purchase these properties, being stuck with them. And they have to get rid of them in order to free up cash just to operate.

Remember, many of these companies are publicly traded. And many of them continuously report yearly losses while the PR machines say “we are working towards profitability.”

Is the perceived increase in listings related to more of these iBuyer-owned properties on the market in order to get them off of the books, or because traditional buyers are hesitant to jump in right now?

Tamboer had some theories about this. She remarks that the current pandemic has “Taken our market from seven layers of insanity down to 4!”

What is a layer, you ask? I asked too!

Tamboer explained that a layer is like a degree of “hotness” for a market.  A “regular hot” market is considered one where there are 50-75 properties under contract for every 100 active for sale.  “Really hot” is 76-100 under contract for every 100 listings. A FRENZY/INSANE market is where there is more under contract than what’s active for sale. 

Three weeks ago (just prior to the stay-at-home order given by Arizona Governor Doug Ducey) some areas of Greater Phoenix had five times more properties under contract than were active for sale. If a buyer with a budget between $200K-$250K was looking in Chandler for a home, they would’ve had three properties to look at in the entire city while 37 were already under contract. 

Now, three weeks after the governor’s order, that same buyer has 20 properties to choose from and 27 under contract. While it’s definitely better for the buyer, there’s little chance of home values declining under these circumstances.

Hello, housing supply

With the current market, that ratio is dropping, and the same areas are experiencing a 10% increase in supply. The availability of more homes is why we are seeing more listings.

But the price point and the availability have caused some buyers to jump in right now. The traditional buyer feels like he or she now has an actual chance to get an offer accepted. No competition from iBuyers. Perhaps not multiple offers at once.

And according to Tamboer, we are also seeing supply right now coming out of the short-term rental supply (Airbnb, VRBO types) and into the sales supply. The pandemic is causing the owners of the highly coveted seasonal investment property to miss the highly coveted season. Especially in Arizona, and that means converting to long term rental or simply listing for sale.

The big question being asked out there is if there is going to be more supply, when are prices going to go down? The answer is: It depends.

Overall, the U.S. real estate market is not in the free fall that it was in during 2008.

Today, the market prices have risen, but homes, in general, are still within affordability ranges, and real people can still buy houses, not just Wall Street and investors. That’s why “It depends.”

If the real people and traditional buyers can weather the storm, and the government allows for forbearances instead of foreclosures when people get behind on their payments because they are not working, we should be OK.

Looking ahead

The data has to cycle through at least a season to be reliable, and we are all hoping that this pandemic is over before then.

“It’s reasonable to expect a recession,” Tamboer said. “It’s not reasonable to expect massive depreciation of homes or another foreclosure crisis.”

Some good news is many of the organizations that came into existence after the crash of the 2008s and beyond, are still in existence today and ready to help if necessary. 

Most of us are not ready to look at the data and say there has already been a significant shift. In fact, in my market in Arizona, although we are seeing those cancellation numbers grow, we are also seeing closings continue and listings come on the market.

So with the iBuyer programs continuing to lose investment, and certain markets opening up to traditional buyers who may not have had an opportunity to buy, maybe this is the time to actually buy a house.

I’m pretty sure when we make it through this new normal of being stuck in our houses or apartments with our families for weeks, a lot of us will say “When this whole thing is over, we’re moving!”

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