Shares of Redfin were falling sharply Friday after the online real estate brokerage said it expected a first-quarter loss wider than analysts' estimates. The company said it expects to report a loss in the first quarter of $115 million to $125 million vs. analysts' forecasts that called for a loss of $75 million. For all of 2021, the company lost $109.6 million. Redfin said it expects first-quarter revenue of $535 million to $560 million. Revenue at the company's properties segment, which including iBuying — a business that rival Zillow (Z) has been exiting — was forecast at between $330 million to $350 million. For the fourth quarter, Redfin reported a loss of 27 cents a share vs. a profit of 11 cents a year earlier. Analysts expected a fourth-quarter loss of 31 cents.
Analysts at RBC Capital Markets downgraded their rating on Redfin shares to Sector Perform from Outperform, and lowered their price target on the stock to $23 from $60. "We throw in the towel on RDFN as the primary points of our thesis appear broken and unlikely to show enough improvement in the coming year to warrant an Outperform rating," RBC analysts wrote in a research note. They added that share gains at Redfin "are simply not materializing at a fast enough rate," and said "home inventory challenges" and "lack of secular story should make for slower growth."
'IBuyers purchased 70,402 homes in 2021, more than double the previous annual high of 32,726 homes in 2019,' according to Zillow's Q4 iBuyer report.
iBuyers sold homes they bought for a median mark-up of 1.1 percent in the fourth quarter, according to the Zillow report. That's the second-lowest margin on record, down from 8.6 percent in the first three months of 2021.
Companies operating as instant buyers picked up more than 70,000 homes last year, setting a new high water mark for the industry. A new report from Zillow looking at the final figures from 2021 found that iBuyers more than doubled their previous annual high for homes purchased in the 38 largest markets and also sold more homes.
However, iBuyers continue to struggle to show profitability at a scale where they're valuating, buying, repairing and selling thousands of homes across the country. The data also included homes bought and sold by Zillow Offers, which was famously shuttered in the fourth quarter after it failed to correctly valuate and sell homes for enough profit. (The segment lost the company $342 million in the fourth quarter of 2021.)
Opendoor, the largest of the major iBuying companies, bought 9,639 homes in the fourth quarter and sold 9,794. Both were major increases for the company, and it ended the year with 17,009 homes on hand. In the same timeframe, its losses grew. It lost $191 million, more than triple the $54 million the company lost during the final three months of 2020. Opendoor lost $662 million in total for 2021.
The companies operating in their 38 largest markets picked up 1.9 percent of homes sold in the third quarter of last year, a record high. But as their market share grew, so did the time it took to get rid of the homes. Hold times for iBuyers rose to 98 days in the fourth quarter, up from 63 days in the middle of the year. To flippers, the time spent holding onto a house is a significant operational cost that has implications for profitability. Investors pay utilities, property taxes, financing (if needed) and other costs while they still own the home.
Image by: Flo Pappert.
One in five homes resold by iBuyers Zillow, Opendoor and Offerpad in 2021 ended up being flipped to institutional investors and other private entities, "a secret pipeline" with the potential to exacerbate inventory shortages in markets where iBuyers are active, according to a Bloomberg analysis. Bloomberg's analysis of 100,000 property records compiled by Attom Data Solutions found that iBuyers were 60 percent more likely to flip homes to investors in predominantly non-white areas, with thousands of homes sold to landlords backed by KKR & Co., Cerberus Capital Management, Blackstone Inc., and other private ventures. "These companies go around saying, 'We're going to help mom and pop and inject liquidity into the market,'" Inman contributor Mike DelPrete told Bloomberg. "They don't say, 'We're going to suck up houses from the ordinary market and sell them to Wall Street.' "