We all know what’s been going on with the housing market over the last two years. The combined pressure of the pandemic and the rise of iBuying has greatly limited housing supply while demand has continued to rise. We’ve even written about it a couple of times recently, mostly discussing the ways in which the current market is pushing primary home buyers into rentals.
But, as the old axiom says, what goes up must come down.
A couple of recent events suggest that the housing market will cool down some, which sounds like a bad thing but actually means that, as prices drop, supply may actually catch up to demand and people will be able to buy instead of rent. Sure, this also means that people’s home values will decrease, or at least stop climbing at their record-setting pace, but too many people have been priced out of the housing market for too long--this doesn’t feel like a crash, it feels like a necessary correction.
So, we are going to quickly examine the ways that companies like Zillow and Opendoor, as well as VC investors, have artificially driven up housing prices. We will also consider the likely forthcoming housing market correction, and how OnSite Inspections for Consumer Reporting can help credit resellers as primary home buyers return to the market.
Zillow Got Broken By Its Algorithm and Ambition
First, earlier this week Zillow posted horrific losses, disbanded its iBuying team, laid off 25% of its workforce, and declared that though they had sought to be “market makers” they actually became “risk takers.”
Here’s what happened: Zillow, like Opendoor, has been gobbling up houses, paying above market price when supply is low, hoping to sell those houses on their respective apps for a profit. This is known as iBuying.
And here’s the problem: Owing to a tweak in their pricing algorithm, Zillow was paying too darn much for houses, and the market, though surging, has not made these purchases profitable. This means they have a whole lot of losses on their books, leading to the fallout early this week.
Its main competitor, Opendoor, has seen a surge in its stock value since Zillow bowed out, and while it looks like they will keep pushing full steam ahead, it’s hard to ignore the potential implications.
Venture Capitalists Drive Up Housing Prices By Building for Renters
While the pandemic certainly slowed down home sales, rising costs and shrinking supplies can also be attributed to iBuying and the migration of venture capitalists into the housing market. Venture Capital firms have been buying up property and building housing for rent. This inflates property value in areas with high concentrations of VC properties, and also shrinks supply since these homes are only for rent, not for sale.
The combination of these two forces has artificially inflated costs within housing markets, particularly in areas like Phoenix, Atlanta, Boise, and Salt Lake City.
When Ivy Zelman Says the Sky is Falling, It’s Time to Take Cover
Now, market analysts (including the iconic Ivy Zelman, who famously forecast the 2008 mortgage crisis) are forecasting a “correction” in the coming year.
As Zelman explained to Bloomberg, all it takes is a slight rise in 30-year mortgage rates or a slight dip in pricing before investors begin to offload housing assets, flooding the thirsty market with more supply than it needs. Essentially a bubble is going to burst, but it won’t be a nuclear bomb exploding like it was in 2008.
“I’m concerned that the market is definitely artificially inflated by investors,” Zelman says. “Prices won’t be sustainable if the returns start to flatten out or even come under pressure.”
Again, it’s important to distinguish between primary buyers and investors. Investors have inflated prices beyond primary buyers’ reach. This “correction” will adversely impact investors, but it will make housing more affordable for primary buyers.
Zelman believes this distinction is important: “If you’ve got iBuyers and you’ve got fix-and-flip buyers, and you’ve got private investors trying to diversify their position away from just owning equities, you’re going to have a lot more difficulty delineating true primary demand versus what I call just non-primary demand.”
Credit Resellers, Federal Compliance, and TrendSource OnSite Inspections for Consumer Reporting
As investors and corporations begin to retreat from the market, primary home buyers will find the supply to match their demand. This will lead to a flood of home purchases, and each one of those purchases will require a credit check.
For credit resellers, this is very good news. Home purchases by private individuals have been down since the pandemic started, yet a flood of home buying will breathe new life into the industry.
But with added business comes added compliance measures. Credit resellers must ensure their clients comply with the federal regulations governing access to consumer reporting. Essentially, each and every client must undergo an OnSite Inspection for Consumer Reporting in order for credit resellers to legally provide them access to consumer credit reports.
TrendSource OnSite Inspections is an ideal partner for these credit resellers. TrendSource offers Inspections in all 50 states, guaranteeing coverage wherever resellers’ clients might be. Our inspections are efficient, professional, and accurate.
Credit resellers can order Inspections a-la-carte or in bulk, and can even order them through our online portal. And for businesses in areas still facing COVID restrictions, TrendSource even offers Virtual Inspections.
The housing market is going to cool down for some and heat up for others. As primary home buyers gain access to the housing market that had priced them out, credit resellers will see an influx of business. TrendSource is here to help.
