What the biggest companies in Real Estate have planned for 2021
Covid-19 has ushered in many new programs, policies and protocols, many of which have been in the works for years. The way we handle Residential Real Estate has and will be changed because of this crisis. We are seeing a hard transition towards Real Estate Tech, expect unprecedented volatility, and predict a complete change in the way consumers buy and sell houses.
In a recent survey of Real Estate Professionals (PA, MA, VI, NJ, DA, WV and D.C.), 25% of respondents say their clients would enter a contract without stepping foot in a house. This implies that sellers will begin to seek and expect virtual sales as well. For example, in Davidson County alone, the iBuyer Corporation, OpenDoor, transacted on over 150 properties in 2020 per the County Register of Deed recordings (1/1/2021). That’s estimated to be anywhere between 2-3 million dollars in revenue from the county and this company is sweeping the South Region, doing business in Atlanta, Austin, DFW, Denver, Houston, Jacksonville, Las Vegas, Los Angeles, Orlando, Phoenix, Portland, Sacramento, San Antonio, Tampa and Tuscon. Their buy-sell escrow model is like how Carvana buys and sells cars, creating an online used house lot that buyers can tour virtually or individually after the property has been cleaned, standardized and vacated. Recently, they have gone public via SPAC and their CEO has rang the opening bell of the NASDAQ.
We are seeing a hard transition towards Real Estate Tech, expect unprecedented volatility, and predict a complete change in the way consumers buy and sell houses.
Furthermore, OfferPad, a Real Estate Investment company that offers to buy homeowners property virtually, raised over one billion dollars in two private seed rounds, in 2019. These companies invest with value investment principles and probably make around $10,000 per house, according to the projections from Zillow’s 2018 Annual Report. It may be lobbying or it may be Covid-19, but FHFA now allows lenders to use desktop appraisals to approve loans backed by Fannie Mae and Freddie Mac, to reduce the need for in-person inspections and transition the buying process to favor the large House Buying Corporations.
These trends are related to the pressure of Lenders to find solutions to the 3 million missed payments on residential mortgages in April 2020 alone. These banks cannot use the same solutions that we saw in 2008 because they have to follow the new Covid-19 practices. Anecdotally, this means short sales are handled in a new way that favors investors buying the bank seized property. Reverse Mortgage Solutions, Inc., a large Reverse Mortgage servicer in the Nashville Metro, now allows short sales to be conducted with a HUD approved appraisal that the buyer/seller pays for, instead of a bank appointed appraiser, like in the past. It is time to Short Sale, again.
Banks have put delinquent mortgage foreclosures on hold even though the Covid-19 Moratorium, preventing HUD backed loans from being foreclosed on. As of July 2020, foreclosure notices are down an estimated 600% according to our company data. This foreclosure interruption in Spring is correlated with the interruption in Traditional MLS sales as well. In a recent survey, 77% of Real Estate Professionals stated their clients are waiting to list their homes until the COVID-19 related restrictions have been lifted. Furthermore, greater Philadelphia saw over 1800 new homes come to the market in the first 3 days of restrictions being lifted. Redfin predicts the largest sales transaction YoY change in history for 2021.
As fear selling increases from small portfolio owners of single family houses that did not collect rent, Airbnb portfolio owners, foreclosures, cash strapped homeowners, and those joining the sell off in order to avoid loss of equity, many investors will be able to buy property at irrationally low prices. The animal spirits assume that this recession equals a housing market crisis because that is what we saw in the last recession. While the last recession was caused by a Real Estate crisis, this recession is caused by a public health crisis. The Real Estate Economy has had such a historically short time to recover from 2008 that it should not see a rational correction, albeit an irrational selloff is still possible.
Furthermore, sharp inflation projections should yield higher prices in Real Estate. This unique time should not be passed up as a buying opportunity and not borrowing more money should not be your biggest regret looking back. Capturing large percentages of this sell off is what the iBuyer companies plan to do. Establishing themselves as the company you sell your house to, similar to how Carvana is the company you sell your car to is possible, depending on how aggressively they buy over the next year and how well their marketing exposure works.