Thread by @Dalrymple

So this tiktok about companies like Zillow potentially manipulating the housing market has been making the rounds (2.2m views etc). The premise is that companies will buy up all the houses and then use their clout/resources to drive up the prices (thread)

It raises two questions:
1) Is this happening now?
2) Could this happen in the future?

Right now, the answers seem to be 1) not so much, and 2) not for quite a while.

What this video is describing is a type of business called iBuying.

IBuying is basically home flipping, except done by big companies with lots of resources. Zillow and Redfin both do it. But the biggest player in the space is Opendoor. There are companies too, such as Offerpad

These companies buy homes at a discount, do some basic repairs, then turn around and sell them. The pitch is that by using these companies, you can sell your home faster, w/ less hassle, and w/out doing repairs yourself. So, it’s supposed to be easier.

The reason the tiktok video’s premise doesn’t appear to be happening right now is that currently all the major iBuyers combined have only about 1% share of the home sales market. So, they’re still tiny players.

Everyone knows and uses Zillow and Redfin too look at houses. They have a massive amount of mind share. But iBuying, specifically, is still relatively new and small.

It’s worth noting here how Zillow & Redfin have historically made their money. Zillow sells leads to real estate agents. And Redfin operates a traditional(ish) brokerage. They’re making money in ways I didn’t even know about before I started covering housing

So COULD one of these companies theoretically get big enough that it buys all the houses in a certain area? And then jacks up the prices?

Well, anything is possible. But the iBuying sector is getting more competitive and less monopolistic right now.

Opendoor, for instance, used to have a massive head start compared to Zillow. But Zillow is now catching up. Practically every big real estate brand is launching an iBuyer now, and many smaller brokerages are doing local versions.

It strikes me as a similar situation to what happened in retail where you used to have a bunch of mom & pop shops, but now it’s Amazon, Walmart, Costco, Best Buy etc.

Home flipping used to be a small time biz, but now the big companies and big money are coming.

But in the same way that Best Buy can’t charge uncompetitive prices for TVs bc people will just go to Costco, Zillow is constrained by Offerpad et al.

There are a lot of other constraints on the iBuyers as well. They generally only buy mid-priced tract homes, meaning they can’t really work with vast swaths of older cities. Much of central Los Angeles, for example, isn’t iBuyer territory bc the houses are pre-War.

And lately, the iBuyers have been paying ABOVE the market rate for houses, not below (thanks to a highly competitive housing market). inman.com/2021/08/11/ibu…

This matters bc there is a housing crisis. Housing is too expensive for too many people.

But every few weeks for an article I end up talking to economists. I often ask them about this, and their answers are almost always the same: We built too few homes in the US for too long.

None of this means that iBuying doesn’t raise some interesting questions. In his response, for example, Redfin's CEO noted that iBuyers are "counter-parties” to consumers, while traditional agents are fiduciaries.

https://twitter.com/glennkelman/status/1439337458399735816

What happens to real estate/housing, then, if more and more consumers are engaging with “counter-parties” rather than having someone in their corner. (Idk the answer)

It’s also worth noting that real estate can be a pathway to the middle class with a low barrier of entry. So, you don’t need to have a college degree. You don’t have to be white, or a man.

But if big companies come in and take over, does that change?

Again I don’t know the answer. The point is just that iBuying, and big money in real estate generally, raises some interesting questions.

At this point though, monopolistic price fixing seems to be a less urgent issue.

In conclusion, I talked to an analyst about the premise in the tiktok video. His take: “Just because it’s possible doesn’t mean it’s probable”

inman.com/2021/09/23/red…