Robert Hahn, the managing partner of 7DS Associates, a marketing, tech and strategy consultancy, has an ongoing bet that iBuyers will have a 60% market share of the housing market by 2024.
In a recent article appearing in Inman News, Hahn pointed to recent changes within the ground transportation sector as a beginning comparative insight to his thinking. During 2014, Uber and Lyft had a market share of 8% within the ground transportation sector while taxis had 37% and rental cars dominated with 55%. In Q2 2018, rental cars had a 22.3% market share, taxis had a 5.2% market share and Uber and Lyft controlled 72.5% of the ground transportation sector. Going from 8% market share to 72.5% in 4 years is quite remarkable don’t you agree?
Currently, iBuyers have approximately 10% market share of the housing market. How does 10% become 60% over the next 5 years?
Consider another insight to Hahn’s thinking…his comparative unit economics analysis of the sale price sellers will likely net for a $300,000 house by using an iBuyer such as Zillow or a “traditional” real estate agent/broker. Hahn calculated that a seller’s holding costs would likely be higher than Zillow’s since Zillow isn’t paying a mortgage while waiting for a sale; Zillow would likely get a better corporate rate on its corporate bonds and credit facilities than sellers would get on a mortgage; Zillow would likely get a better cost on renovations than a seller would get; and bundling on mortgage, title and insurance costs would likely generate a 3%-4% gain by selling to an iBuyer over a listing agent. All said and done, Hahn estimates that selling a $300,000 house would net $244,496 with an agent and $245,645 with an iBuyer.
Hahn also points out that iBuyers are not investors…they are not buyers and holders…they are turning over inventory as soon as possible, currently within a 30-90 day window. Hahn also expects iBuyers will become faster, more efficient and more expert at buying, renovating and selling homes and that faster, more efficient, more expert will translate into more houses bought and sold more quickly and therefore generating more transactions (rather than 2 sides for a transaction, 2 sides become 4 sides when the seller sells the “old” house to an iBuyer and then turns around and buys a “new” house from the same iBuyer) and more capital more quickly.
According to Hahn’s reference to the Securities Industry and Financial Markets Association (SIFMA), there was a total of $96.6B in mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac, Ginnie Mae, etc. in February 2019. For a full year, SIFMA reported $1.9T was issued in MBS; rounding up to $972B is less than one half this amount. Who is buying these MBSs? Pension funds, insurance companies, sovereign wealth funds that need income generation and stability.
Any way one slices it, the end product is a mortgage note…the iBuyer buys from the seller – the seller gets cash – the seller pays of his/her mortgage – the iBuyer gets a portion of those fees – the seller turns into a buyer and buys from the iBuyer – the buyer assumes another mortgage – the iBuyer gets a piece from the lender on that mortgage – the lender is now down cash but is up on the new mortgage note and the iBuyer is again up cash – the lender sells the mortgage to a secondary market (MBS) and then there is more capital.
No wonder iBuyers are buying mortgage and title companies as well as insurance companies. Some are even talking out loud about buying moving, renovation and maintenance companies to make the entire process a one-stop-shopping experience.
According to this scenario, Hahn says, “60% of the housing market is not crazy” by 2024. Just look at what Lyft and Uber have done in 5 years.