RALEIGH – Home sellers in Wake, Johnston, and Franklin Counties realized the greatest year-over-year increase in sale profit margins of any U.S. region with more than one million people, according to an analysis of real estate data by ATTOM Data Solutions.
It’s the latest sign of a booming housing market in the Triangle, with record median sales prices and historically low inventory.
The data set found that profit margins—the percent change between median purchase and resale prices—increased from 30.4% in the third quarter of 2020, to 67% in the third quarter of 2021.
In dollars, the data set showed that the typical seller gain in the third quarter of 2020 was $70,000. But in the third quarter of 2021, the typical seller gain was $143,250, or a 104.6% increase in typical profit.
Overall, the Raleigh metropolitan statistical area—which includes Wake, Johnston, and Franklin Counties—ranked fourth among the 204 markets tracked in the data set, and first among the MSAs with populations of greater than one million people.
Specifically, the study documents “the difference between the median sales price of homes in a given market in a given quarter and the median sales price of the previous sale of those same homes, expressed both in a dollar amount and as a percentage of the previous median sales price.”
Also up: all cash sales, and investor share of transactions
Raleigh is also seeing an increase in the percentage of real estate transactions that are made in all-cash sales, with a year-over-year increase of 68% in these types of transactions, from 17% in the third-quarter of 2020 to 28.7% of residential transactions in the third-quarter of 2021, according to the data from ATTOM Data Solutions.
While not all of those all-cash sales would come from investors seeking to acquire property, ATTOM Data Solutions also found that, in the Raleigh MSA, the activity of institutional investors increased dramatically year-over-year: by 263%.
In the region, during the third quarter of 2020, 3.9% of all transactions came from an institutional investor, which ATTOM Data Solutions defines as “non-lending entities that purchased at least 10 properties in a calendar year,” and includes iBuyers such as Opendoor, Offerpad, and Zillow.
In the third quarter of 2021, the share of investor purchases in the Raleigh MSA was 14.2%, a 263% increase year-over-year. Even compared to the second quarter, when institutional investors were scooping up homes in the Triangle, activity increased from 10.5% of all transactions to 14.2% in the third quarter.
Though not all homes bought by institutional investors were purchased by iBuyers, a search of Wake County public records shows that, in the third quarter of 2021, July 1 – Sept. 30:
- Zillow purchased 150 homes in Wake County and sold 68 homes
- Opendoor purchased 262 homes in Wake County and sold 181 homes
- Offerpad purchsaed 6 homes in Wake County and sold 4 homes
But the region could see less investor transactions moving forward, as Zillow announced this week that it would stop purchasing homes through its iBuying service Zillow Offers, citing that the company was unable to accurately predict home sale prices.
Zillow’s exit from iBuying was a little surprising,” said Todd Teta, Chief Product Officer at ATTOM Data Solutions, in an interview with WRAL TechWire. “Seeing a complete exit from this segment, after so much momentum towards it, indicates broader pressure on their business than we knew.”
But the fact that Zillow will exit this line of business doesn’t portend the end of iBuying, said Teta. “We believe iBuying will continue to be a part of the market long-term.”
Zillow experienced ‘catastrophic pricing failure’
Zillow’s stock share price was $85.34 per share when the company released news that it would wind down the Zillow Offers program, noting that the company division posted $380 million in losses in the prior quarter.
Mid-day Thursday, Zillow stock was trading at $68.37 per share, down nearly 25%.
“Zillow’s iBuyer business grew so fast, so quickly, that it literally broke the company, forcing an abrupt shut down,” wrote Mike DelPrete, a global real estate technology strategist, and a scholar-in-residence at the University of Colorado Boulder, in a blog post this week that was reprinted, with permission, on WRAL TechWire. “In Q3—the three months that broke the business—Zillow purchased more houses than in the previous 18 months combined.”
According to DelPrete, Zillow bought 9,600 homes nationwide in the third quarter, about doubling their acquisitions from the second quarter of the year. But in just the third quarter, nationwide, Zillow bought about as many homes as it had purchased in the six preceeding quarters, when it purchased about 9,700 homes, DelPrete noted.
“That’s 100 houses a day, for three months, Zillow bought over 100 houses a day, for three months,” said DelPrete in an interview with WRAL TechWire this week. Compare the company’s workload and acquisition costs in those three months with the same volume of transactions, in a nationwide market where home price appreciation was far above historical averages, and you can see what happened to Zillow.
“Imagine doing anything, compressing your workload from 18 months into three months,” said DelPrete. “All of your chores in your house, from 18 hours, to three hours, what do you think is going to happen? You’re going to mess up, things are going to blow up, and that’s exactly what happens with Zillow here.”
Whereas in the first and second quarters of the year, said DelPrete, Zillow actually had a pricing advantage, comparatively, to its other iBuyer competitors, that changed dramatically in the third quarter.
“It was just a catastrophic pricing failure,” said DelPrete. “Opendoor and Offerpad saw the change, and they started paying less for homes, Zillow just kept paying top dollar.”
While some local real estate markets may have performed better for Zillow and its Offers program, said DelPrete, “the trend is the same— the other iBuyers reacted quickly, Zillow never reacted, they kept paying top dollar, it just took them too long.”
Other iBuyers, like Opendoor, Offerpad, and RedfinNow, which began operating in the Triangle earlier this year, may not be as affected, noted DelPrete. But further data isn’t available yet, and won’t be available for review and analysis, until earnings reports come out for those companies.
Redfin reports today. Opendoor and Offerpad report on Nov. 10.
“iBuying is still hard, it’s a very risky business,” said DelPrete. “When you’re talking about billions and billions of dollars, and buying 100, 200 houses every day, you’re going to make mistakes.”