Can’t Find a Starter Home? Here’s the Dirty Little Secret Why

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After Zillow — a leading online real estate marketplace, pushed its home-buying division — Offers, last year, the company has since decided to drop the program and sell the remaining inventory. However, the continued presence of large-scale institutional “iBuyers” — or instant buyers — has led to the average buyer being squeezed out of the real estate market by big investors.

A Bloomberg analysis of Zillow and other big iBuyers, such as OpenDoor and Offerpad, shows that these companies are selling thousands of homes to landlords backed by KKR & Co., Cerberus Capital Management, Blackstone and other large institutions. In many cases, Bloomberg noted that these properties are never even listed in the first place. 

According to Zillow’s 2021 Q3 iBuyer report, homeowners sold 27,244 homes worth a total of $10.6 billion using an iBuying service.  iBuyers accounted for 1.9% of home sales, almost doubling their previous high of 1% set in the previous quarter. This report evaluated the four largest iBuyers in the market at the time: Opendoor, Zillow Offers, Offerpad and RedfinNow.

iBuyers were also willing to pay more for homes. The median price of homes sold to an iBuyer was $376,000 in the third quarter — a record. 

However, Bloomberg found that about 20% of homes flipped by iBuyers last year ended up with investors and other big entities, with the rate being double in some metro areas. In some of these markets, flips were happening at higher rates in communities of color. Data from Redfin found that investors accounted for more than 18% of all U.S. home sales in the third quarter, the highest percentage since the year 2000, Bloomberg added.

Investing for Everyone

This reality has raised concerns over the role of iBuyers in the current housing market. U.S. political voices from both sides have blamed institutional landlords for keeping affordably priced houses out of reach for regular families, Bloomberg reported. 

“It just doesn’t feel right,” Mike DelPrete, a scholar-in-residence at the University of Colorado Boulder who studies iBuyers, said to Bloomberg. “These companies go around saying, ‘We’re going to help mom and pop and inject liquidity into the market.’ They don’t say, ‘We’re going to suck up houses from the ordinary market and sell them to Wall Street.'”

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