Dwindling inventory and historically low interest rates across the housing market led to bidding wars and huge profits for sellers in 2020, as stay-at-home orders and the widespread shift to remote work made many Americans reevaluate their lifestyles and financial priorities. 2021 is expected to be a strong year for real estate with an increased emphasis on home buying. The field is ripe for competition and opportunity, for iBuyers and aspiring homeowners.
Opendoor and Zillow are the two main players in instant homebuying, both with big hopes, and a few obstacles, for the new year.
The San Francisco-based Opendoor halted homebuying in March, as the pandemic upended our lives and the housing market. Between February and July of last year, Opendoor reduced its inventory to $172 million from over $1 billion.
Home prices surged across the market in 2020 and are expected to slow this year, but Opendoor’s price increases show no signs of stopping. As Opendoor’s listings dropped 34%, the average price moved in the opposite direction. Since May, the average listing price has jumped from $789,000 to $992,000, a 27% increase. This could suggest a larger theme in real estate and iBuying, as well as Opendoor’s platform and business.
In a SEC filing this week, Opendoor projected $2.58 billion in 2020 revenue, down 45% year-over-year from $4.7 billion. The company is looking to raise more than $600 million through a stock offering, just six weeks after it went public via a SPAC.
Opendoor sold nearly 19,000 homes in 2019 across its 21 US markets. The filing revealed plans to expand into new markets and add to its working capital. “The principal purposes of this offering are to increase our capitalization and financial flexibility,” the filing stated. “In addition, the Company plans to continue to invest to double the markets it serves in 2021.”
Zillow benefits from home browsers and buyers
Shares of Zillow jumped 14% today after the online real estate site beat expectations on its fourth quarter earnings with $789 million in revenue. Its full year 2020 revenue grew by 22%. Analysts expect the stock to surge 45% higher than Wednesday's close, and it’s not hard to see why.
Interest in Zillow soared in 2020 with web traffic and app usage reaching new highs as quarantine-bound Americans browsed their potential futures. Over the last six months, Zillow’s three websites (Zillow, StreetEasy, and Trulia) have seen an increase of 145% in weekly pageviews, now with an average of 416.9 million.
The site hit a fourth-quarter record of 201 million monthly unique users, an increase of 16% year-over-year. The company reported a record 9.6 billion site visits for the full year 2020, up 19% year-over-year.
As WSJ points out, in the previous quarter reported, Zillow lost about $7,500 on average for each home it bought and sold after interest expense, despite 2020’s home prices surge. Meanwhile, Opendoor made roughly $5,000 per home post-interest expense in the first quarter of last year. In the third quarter, Opendoor made an average of just under $13,000 per home after interest expense, dividing its contribution profit by the total number of homes sold.
Opendoor, and the iBuying business as a whole, leans on home improvements to ensure a quick closing. The company buys homes from owners, makes minor renovations, and aims to sell at a premium while also profiting from ancillary services. This could be another reason why its prices are rising. The company’s familiarity with planning and executing renovations, given its earlier entry into the iBuying business, could also be what sets it apart from the competition.
Despite plummeting revenue, Opendoor seems to be in pretty good shape. Ahead of its December IPO, valuation soared to $18 billion, about three times its enterprise value of $5 billion in September. And after a few weeks of dipping shares in 2021, Opendoor stock has risen to $36.49 per share at the time of writing, up from $27.30 earlier this week. The company projected $10 billion in revenue by 2023. It said by capturing 4% of the US housing market, it can become a $50 billion company.
A housing boom backlash?
As inventory dropped and prices spiked around the country, buyers had little to choose from. People who may have been comfortable in their residences pre-COVID made hasty decisions amid pandemic boredom or small apartment-induced quarantine claustrophobia. Panic buys led to bidding wars, which led to financial strain and potential regret for some. 2021 could determine the aftermath of the US housing boom and what's next for these iBuying leaders.
About the Data:
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