Wednesday, June 22, 2022 / by Bryan Baylon
If you would like to study iBuyer purchase numbers, sales numbers and gross margins in detail, the appropriate charts can be found in the Cromford® Public section of this site.
For several years, we published a monthly summary of iBuyer activity within this Daily Observations section, but that fell apart when Zillow decided to allow its in-house title company to contravene Arizona statutes and fail to file Affidavits of Value for the homes it sold in bulk. The exemption it claimed only applies when homes are sold between subsidiaries of a single parent company for no or negligible consideration. This often happens within different subsidiaries of developers. That exemption did not apply to Zillow selling to institutional investors. However the state of Arizona did not take any action and we are left with no affidavits for hundreds of homes that passed through Zillow's ownership.
We now intend to publish occasional summaries of activity for individual iBuyers where we hold reasonably accurate data. Since they are no longer in the iBuying business, we can safely ignore Zillow. We will also ignore small players like Redfin and focus only on the larger iBuyers - Opendoor and OfferPad. Today we will take a quick look at OfferPad, based on their ARMLS listings rather than their recorded deeds.
Below is a chart showing active listing counts for OfferPad so far in 2022 together with listings under contract (Pending or Active-UCB).
On June 21, we can see 242 active OfferPad listings plus 6 in UCB status. There are also 65 pending and 4 temporarily off market. This gives OfferPad a contract ratio of only 29. This is a rather weak reading and the lowest we have seen for OfferPad since the end of 2018. It indicates that the market in OfferPad-owned homes is cool. I suspect they may be concerned that it could take a long time to sell their large inventory in current market conditions.
Everything was going pretty smoothly until April, but the rapid rise in active listings with no corresponding rise in listings under contract suggests that OfferPad no longer has a challenge in the buying department. Its difficulties now lie in selling.
These statistics also indicate that the situation for OfferPad may have changed even more dramatically than for the market as a whole. If we look at their contract ratio over time, it has dropped from a very healthy 219 on March 20 to a good 124 on April 20, then an average 49 on May 20 to a weak 29 on June 20. Their business in Greater Phoenix has transitioned from hot to cold in 92 short days. I suspect they may regret buying quite as many homes as they did since March. How will they respond to this sudden and unexpected challenge? I would not be surprised to see them cancel some of their existing contracts or come back with lower price offers than they previously made. They may even call a temporary halt to new buying, while they reduce their current inventory to manageable levels, given a much slower sales rate. According to affidavits, they sold 55 homes during May and 21 month-to-date in June. With 242 homes active, they now have more than 6 months of inventory at their current rate of sales. To sell these homes, they may have to resort to price cuts sooner rather than later. The observations are pure speculation, and I am obviously not privy to their internal business processes, but their excess of supply over demand will probably require some creative changes in strategy.
Sudden changes in the market conditions pose challenges for everyone and the iBuyers are not isolated from these difficulties.
Market incites provided by the Cromford report.