Thursday, September 16, 2021 / by Ryan Nager
Here’s what you need to know about iBuyers in our Phoenix market.
If you’ve been paying attention to the Phoenix real estate market, you may have noticed a surge in iBuyers. Why is that? Today, I want to answer that question and explain the iBuyer situation in our current market.
So why are hedge funds investing in real estate in the first place? Conventional wisdom says they put their excess money into stocks, but that changed when the market crashed in 2008 and 2009. Companies were sitting on huge piles of cash, and real estate was so cheap, it was too good of a deal to pass up. Since then, companies have realized the power of investing in real estate. We’ve seen nothing but appreciation since the crash in 2008, so their investments have paid off so far; why would they stop now?
This is contributing to a supply-side issue in our market that is also related to the 2008 crash. When everything crashed, builders were left in a tough position since all the homes they built were now practically worthless. Since then, they’ve been very cautious about not overbuilding. Because there are fewer homes, buyers have to compete more, thereby driving up prices. This makes real estate an even more attractive investment for iBuyers.
If you’re selling your home, iBuyers sell you on the fact that it’s convenient. They usually pay in cash with no strings attached. However, they usually just clean the home and put it right back on the market for a higher price. Recently, iBuyers have switched tactics, and they’re selling directly to hedge funds instead of putting the home back on the market. For example, Opendoor, a large iBuyer, sold 20% of its inventory last month to large investment firms. This is a little concerning because it’s further exasperating our low supply issues.
So that’s what’s going on with iBuyers, but why is Phoenix such a hotspot for this activity? Recently, Phoenix overtook Philadelphia to become the fifth-largest city in the U.S. On top of that, Arizona is consistently in the top three states for migration. Hedge funds look at this data and see the writing on the wall; Arizona will likely become a younger and more populous state for years to come.
If you want to know how you can navigate our unique Arizona market, please reach out to me via phone or email. I am always willing to talk.