Are 'iBuyers' Propping Up The US Housing Market?

Thanks to the advent of companies like Zillow, Redfin, OpenDoor and Offerpad, a new phenomenon is transforming the real-estate market, for better or worse. It's called the 'iBuyer'.

Quite simply, an iBuyer is a company that generates offers for homes via app. Sellers typically request an offer, enter some information about their home, the app generates the offer and then the seller has a few days to accept or reject it.

This business line is one of the reasons why Steve "the Big Short" Eisman has decided to short Zillow, one of the pioneers of the iBuyer movement.

Here's his reasoning, as told during an interview with Bloomberg TV:

"My largest short is a company called Zillow."

"The reason I think it's an interesting short is because they've just entered a new business out of the business of being an Internet platform company. What I find ironic about it is why do people like Internet platform companies? They generate a lot of revenue, they generate a lot of free cash flow, they're not cyclical and they have margin expansion. Now Zillow is getting into a business that's capital intensive and cyclical and in a recession they'll get killed."

The iBuyer market is blossomed into a billion-dollar industry, and many iBuyers now represent de facto marginal buyers of homes in suburban markets and swaths of the south and west, where homes are typically less expensive (most iBuyers have shied away from the northeast). 

In its first-ever analysis of the iBuyer market, ATTOM Data Solutions determined that Phoenix, Ariz. is effectively the epicenter of the movement, while Atlanta, Raleigh, Charlotte and Dallas-Forth Worth are also major markets.

But ATTOM hit upon a conclusions that investors might find unnerving, particularly given the recent slump in home-buying activity: In many markets where iBuyers are present, home prices hit new peaks in 2018.

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That seems to suggest that Eisman had a point when he argued that Zillow would get killed during a downturn after being stuck with unsellable inventory.