Last updated: May 4, 2022
A fascinating 13 year bull market has finally given way to deteriorating market conditions both in the real estate sector and the broader economy. In this report, we'll look at market data to understand how various real estate investing strategies have fared since the COVID-19 pandemic began. Our focus, in line with our real estate investing platform, will be on single family residential real estate.
The COVID-19 pandemic-fueled housing bubble has shown signs of mania, with retail buyers (people buying personal residences), iBuyers, REITs and and Wall Street investment firms collectively bidding up the value of homes to levels that are -- in many geographic markets -- rather concerning.
For more insights into the health of the US housing market, US consumer and broader US economy, review our Federal Reserve Economic Data Dashboard.
There are many different ways to invest in real estate and performance certainly varies.
PropTech, short for property technology, has received record amount of private investment from venture capital firms and the asset class was front and center among the 2020-21 SPAC merger boom.
Compass, the technology-enabled real estate brokerage IPO'd with a market cap of --, that market cap has shrunk by 71% in the past year.
Opendoor, the leading iBuyer, has seen its market capitalization decline by 65% over the same timeline.
OfferPad, the second largest pure-play iBuyer has halved in value over the past year.
Zillow stumbled 69% over the trailing 12 months and shut down its Zillow Offers iBuying business. Related content: Reading Between The Lines: What Zillow's iBuying Pause Really Means
Redfin is down a remarkable 84% over the past year, also running into difficulties with its RedfinNow iBuying program.
Looking at these specific examples, we see three core items that have destroyed shareholder value:
The number of active listings in the United States is down from 1 million units in January 2020 to under 400,000 units in March 2022.
The unit economics of iBuying are alarming. Most of these companies lose money on a per unit basis. iBuying is effectively unprofitable (to marginally profitable at best) home flipping at scale. For more on this, we recommend reviewing Mike Del Prete's Research.
LoanDepot is down -85% on concerns about the impact that rising interest rates are having on refinancing demand, and low purchase transaction volume due to record low housing inventory.
Rocket Companies, parent of Rocket Mortgage and Quicken Loans, is down -61% for the same reasons.
United Wholesale Mortgage is down -55% for the same reasons.
This is what happens when housing inventory reaches record lows and a major interest rate spike eliminates refinance demand.
Meanwhile, owners of real estate have performed convincingly well over the past year. The Case-Shiller Home Price Index is up over 19% over the past year -- an unprecedented appreciation driven by low inventory and increased demand.
Landlords have seen median rental income increase more than 5% over this time period.
Passive real estate investors have seen REITs outperform the market:
Owning real estate may be a better business model than facilitating real estate transactions, and in the past year has proven to be a better asset class than the broader stock market.
We believe everyone should have real estate in their portfolio.
#proptech stocks 1-yr returns: $COMP -71%, $OPEN -65%, $OPAD -50%, $Z -69%, $RDFN -84%— Daniel Sperling-Horowitz (@dwshorowitz) May 2, 2022