Economy

COVID-19 Looks Set To Raze Online Home Sales (And Agents’ Jobs)

online real estate

The coronavirus pandemic is shaking any number of business verticals to their respective cores — upending transitions to the digital age and sending thousands of people to the ranks of the unemployed.

The Wall Street Journal reported this week that a quartet of the biggest “iBuyers” within real estate — firms that buy properties, fix them up (if needed) and resell them, typically via platform models — stopped buying homes late last month as the economy hit the proverbial wall.

The quartet includes Zillow Group, Offerpad, Redfin and Opendoor Labs. Their stomping grounds, of course, are tied to the U.S. housing market, which itself is poised to take a hit where no part of the U.S. economy remains unscathed.

The housing market depends on the sanguine attitude of the U.S. consumer, and the continuance of, well, getting paid, which in turn ensures that mortgages will be paid.

The report noted that at least some of these firms are “backing out” of pending home transactions and are even forfeiting deposits, which means they are leaving money on the table.

In terms of the big picture, “if you want to stress test the businesses, this is it,” said Mike DelPrete, scholar in residence at the University of Colorado Boulder, who studies iBuyers as a group. “I don’t know if all the iBuyers will survive.”

To survive, it seems, at least some of these firms are taking the same tack as other businesses. They’re seeking to conserve costs as a buffer against a rocky macro environment. Redfin, for example, said it will lay off or furlough 40 percent of its agents. Redfin had reportedly owned homes worth $68 million at the end of last month and had $23 million of that tally under contract to be sold. Zillow had nearly 1,900 homes in its roster mid-month, valued at $589 million.

Redfin CEO Glenn Kelman said in a blog post that, as reported by The Real Deal, “of the field folks leaving, we estimate about 75 percent live in states that will allow them to earn more from unemployment insurance than from Redfin.”

The advent of technology that allows real estate transactions to become a bit more seamless — and where offers can be made on homes instantly, holds its place in a marketplace where there is not just supply (people who want to sell) but demand, too (people who want to buy).

Realtor.com reported earlier this month that “signs of softening price growth and slower buying activity began to emerge in the last two weeks of March,” and that nationally the number of homes for sale declined by 15.7 percent year over year. The site said sellers are rethinking or postponing plans to list their homes for sale in response to the COVID-19 pandemic. In many metro areas, listing volumes were down between high teens percentage rates to more than 40 percent.

There are warning signs that the demand may not materialize all that soon. As we noted in the latest study of consumer sentiment, “Navigating the COVID-19 Pandemic,” PYMNTS surveyed 2,000 consumers and found that the employment rate dropped 15 percent before the pandemic began. And in further data points of worries over employment, 20.3 percent said they were “somewhat” worried about losing their jobs and 28.5 percent said they were “very or extremely” worried about losing their jobs — translating to about 77 million Americans. And a majority said rent and mortgage payments should be waived. This implies that most individuals are cognizant about the strain those payments can (and do) create on household finances.

We found that six out of 10 consumers live paycheck to paycheck (with 87 percent of consumers stating that they had only two months or less of cash in hand before they would need to tap into savings), which implies that big ticket purchases (housing among them) are likely to be deferred.

It seems there will be uneasy times ahead, then, for iBuyers, or traditional agencies who depend on confidence in the future. In an age where the future looks hazy even peering out a week or two from now, taking on a 15- or 30-year mortgage, or venturing beyond the current homestead, seems a risky bet.

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New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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