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Home price appreciation is through the roof again, and Opendoor’s buy-to-list premium (the difference between the purchase price and current listing price of a home) is at record highs.
Why it matters: Opendoor is going to make a lot of money in the first half of 2022.
Dig deeper: Opendoor’s houses are currently listed for a median of 17 percent — or $60,000 — higher than what they were purchased for, on average, 72 days earlier.
- This is based on 1,700 listings as of March 15, 2022 (excluding Texas), and according to YipitData’s historical analysis through February, an all-time high.
- The distribution across listings shows a significant improvement from the end of 2021 — and is pushing so high I had to adjust the chart’s x-axis.
Buy-to-list is a good leading indicator of iBuyer profitability, and it’s usually a few percentage points higher than the eventual sales price.
- Buy-to-list in one quarter generally affects the following quarter: Opendoor’s low buy-to-list in Q3 2021 resulted in a low buy-to-sale premium and contribution margin in Q4 2021 (3.3 percent).
Opendoor is going to have a blockbuster Q2 2022 — contribution margin is on track to exceed 2021’s highs of 10 percent.
Yes, but: If Opendoor is the winner here, who is the loser?
- Opendoor is no different than any other homeseller in the market. If the homeseller is the winner, the loser must then be homebuyers — scant inventory and rocketing home prices are making homes less affordable.
- Opendoor is simply riding the market wave and riding it really well (remember Zillow Offers?).
What’s next: What goes up must come down; home price appreciation will slow, and Opendoor will once again need to deftly read the market and adjust its purchasing activity.
- These extreme market risks are a big reason Zillow exited iBuying.
The bottom line: Opendoor (and Offerpad) are going to benefit tremendously from rising home price appreciation in the first half of 2022.
- It’s worth noting that this key financial driver isn’t within Opendoor’s control. Wildly rising home price appreciation isn’t a business strategy, it’s the market.
Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.
