From Fast Company:
At the edge of the sprawling desert community of North Las Vegas, the four-bedroom home at 7473 Moonglade Street epitomized the impact of the mortgage rate shock in 2022. During this period, mortgage rates surged from 3% in January 2022 to over 6% by June 2022. That placed iBuyers—online home-buying companies—and flippers in a vulnerable position as cities like Phoenix, Las Vegas, and Austin, which were once pandemic-era darlings, transitioned into full-blown housing corrections.
In April 2022, Opendoor acquired the house for $494,000. However, when the iBuyer tried to flip the property back onto the market in May 2022 for $551,000, it found Las Vegas had rapidly shifted from a housing boom to a home price correction. Throughout the second half of 2022, the home experienced nearly a dozen price cuts. When it finally sold in April 2023, Opendoor only received $396,000, a 19.8% decrease from the purchase price.
So-called iBuyers like Opendoor make speedy offers to home sellers in exchange for a “service fee.” These iBuyers then handle any necessary repairs or cosmetic upgrades and put the property back up for sale. The business model is a new take on flipping; however, both business models have the same downside risks if pricing becomes destabilized.
“When the shiitake mushrooms hit the fan, [iBuyers/flippers] want to get out first. The way to do that is to figure out where the lowest sale is, and be 2% below that. And if it doesn’t sell in the first weekend, move it down [again],” Redfin CEO Glenn Kelman told me 15 months ago in October 2022, just days before announcing thatRedfin would close down its iBuyer business. “We notice immediately when fewer people are on our website and fewer signing up for tours . . . we’re sitting on $350 million worth of homes for sale that we bought with our own money, or worse bought with borrowed money. And what we always told investors is that we would protect our balance sheet by acting quickly. We don’t have hope as a strategy. We immediately started marking [things] down.”