Home price appreciation is through the roof, and that’s good news for Opendoor, according to Mike DelPrete. Its current listings are averaging 17 percent increases over the purchase price.
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.