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Opendoor, Real Estate Money Laundering; Fannie Mae Pessimism 😔

By January 8, 2021 No Comments

Analyst thinks iBuyers are “tech disrupters” but will they disrupt mortgage?

Stocks of publicly traded iBuyers are doing well as of late, so analysts are taking note. As they are seen as disrupters to the mortgage business and, therefore, a threat to all of our lines of work, will they ever move from “tech disrupter” to mortgage disrupter?

Wedbush analyst Ygal Arounian thinks so, citing a recent shift in the residential real-estate market into a position of embracing digital innovations, with Opendoor leading the charge.

“We believe iBuyers are primed to be at the center of that tech adoption, and with still less than 1% of total market share are still at extremely early stages of this transition,” Arounian wrote in a recent analysis. “And as the market leader, Opendoor is one of the best positioned to take advantage of these trends.”

Arounian contends the iBuyer model offers significant advantages to both home sellers and buyers by simplifying transactions that are ordinarily highly complex. “Where Opendoor’s model will ultimately become successful, and drive incremental profitability will be around the opportunity to attach ancillary revenue streams,” he writes, without specifying what those additional streams may be.

So how big a threat is Opendoor? Arounian believes the company is likely to rapidly increase the number of homes sold. He projects a total of 13,500 this year, 24,000 next year, and 38,000 in 2023. Revenues are likely to rise as well. Arounian predicts $3.5 billion this year, $6.3 billion next year and $10 billion in 2023. He expects the company to turn profitable in terms of earnings before interest, taxes, depreciation and amortization, or Ebitda, in 2023.

Given that mortgages are a trillion-dollar business it doesn’t seem likely that Opendoor will impact home sales significantly in 2021. But there are several points to consider. Opendoor may be the leader, for now, but it’s a rapidly expanding marketplace for its competitors too, of which there are a little more than a handful. For now. Multiply Opendoor by 5, we’re doing OK… multiple it by ten or more and we’ll start to have bigger problems.

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New real estate law aims to limit money laundering

Say, why is that pricey house never for sale but always empty? Oh, it’s just part of an international criminal conspiracy that a new law is seeking to quash.

The Corporate Transparency Act came into effect on January 1, and it’s plenty to unpack. For one, it took more than 3 years to get passed. Secondly, it has a far-reaching impact, even touching on real estate transactions, though it was originally derived to block funding to foreign terrorists living in America.

Here’s some of the backstory:

Wealthy foreigners love to buy luxury real estate in the United States. Several states also allow anyone to set up a business while keeping their names off the record. Furthermore, unlike other parts of the developed world, where expensive real estate is also widely available, the United States allows businesses to freely buy real estate, even if headquartered in another state.

The Corporate Transparency Act targets wealthy buyers who scoop up high-priced homes and commercial properties through anonymous shell companies in order to help stop the flow of illicit cash into real estate. The Act requires true owners of shell companies to identify themselves to the U.S. Treasury Department’s Financial Crimes Enforcement Network. Those who do not comply face criminal penalties.

In coverage in The Real Deal, lawyers who help in these kinds of transactions don’t expect it to meaningfully impact overall buying and selling.

“Ultimately, the U.S. real estate market is very attractive for both onshore and offshore investors,” said Terri Adler, managing partner and real estate chair of the law firm Duval & Stachenfeld. “As long as the regulations and privacy to the information make sense and work, it will not stop investors from coming here.

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Pessimism in home purchases is growing

Bad news: The Fannie Mae Home Purchase Sentiment Index fell for the second straight month in December to 74, a massive 6-point decline from November.

Five of the six HPSI components decreased month over month, and consumers reported a substantially more pessimistic view of homebuying and home-selling conditions, which drove the relatively large monthly change. Year over year, the HPSI is down 17.7 points.

“Both the ‘Good Time to Sell' and ‘Good Time to Buy' components fell significantly, with respondents overwhelmingly noting the unfavourability of economic conditions,”  said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

The sell-side component fell for the first time since April and by 18 points, reversing most of the increases of the past three months and implying that, at least temporarily, potential home sellers might wait to list their homes, Duncan said.

“If so, this could have the effect of perpetuating already-tight inventory levels and supporting additional (albeit lesser) home price growth, which could contribute to a further moderating of home sales,” he added.

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