The iBuyer invasion now looks more like an incursion. Maybe even an expeditionary force.
Purchases made by an instant buyer, or iBuyer, fell to 1.3% of total sales market share in the first quarter, according to a report from Zillow. That’s down from 1.7% in the fourth quarter and a record 1.9% in the third quarter of 2021.
The Zillow report says homeowner sales to iBuyers have slowed “to about the same degree” as home sales in general, but the drop in market share shows iBuying sales have fallen faster.
Overall, homeowners sold more than 12,000 homes to one of three major iBuying services during the quarter: Opendoor, Offerpad and Zillow Offers. The analysis, which looked at 43 of iBuyer’s largest markets, excluded RedfinNow, which has previously been included in the reports.
While iBuyers’ purchases have declined, their sales continue to hit records as iBuyers attempt to unload inventory. The companies sold more than 26,000 homes in the first quarter, the third consecutive quarter of record sales. iBuyers sold just over 21,000 homes in the fourth quarter.
Besides the scarcity of homes for sale, another factor holding back iBuying purchases is the withdrawal of Zillow offers.
iBuyers are still buying more expensive homes than traditional buyers, although the disparity has narrowed. The median price for an iBuyer purchase was $347,000 in the first quarter, down 5% from the prior quarter. Meanwhile, the median purchase price of a home for the entire housing market rose 2% to $340,000.
The idea that iBuyers drive up house prices seems to be fading. Not only is iBuyers’ market share falling to nearly 1%, but the economics of the industry – and the demise of Zillow Offers – does not allow for extravagance.
While buyers compete for a finite number of homes in a low inventory environment, human buyers are generally more willing to outbid a home, while iBuyers must make a profit and are powered by algorithms.
However, rising prices still help iBuyers. The median markup for homes resold by an iBuyer in the first quarter was 14%, a record dating back to early data from Zillow, from 2018. The median markup in the fourth quarter was revised to 4.6%.
Last quarter iBuyers took longer than before to resell homes, despite strong housing demand. iBuyers typically held homes for 120 days, more than three weeks longer than the typical 98 days in the fourth quarter. Labor shortages and supply chain issues may have slowed repair times.
Atlanta homeowners sold more than 1,600 Atlanta properties using an iBuyer in the first quarter, more than in any other market. The other two markets to top 1,000 were Phoenix and Dallas. The highest market share was in Tucson, Arizona, where iBuyers purchased 6.1% of homes sold.
As Zillow continues to exit the iBuying business, iBuyer’s market share is expected to continue to decline unless another company fills the void. In April, San Francisco-based Opendoor expanded to Long Island, the lower Hudson Valley and New Jersey, seeking to remain the dominant iBuyer after Zillow pulled out.