The stock market was relatively flat on Thursday, with the S&P 500 nearly unchanged as of 1:30 p.m. ET and the Dow Jones Industrial Average and Nasdaq Composite each less than 0.3% away from the previous close.
However, the two pure-play iBuyers, Offerpad Solutions (NYSE: OPAD) and Opendoor Technologies (NASDAQ: OPEN), were major underperformers. Offerpad was down by about 11% to a new all-time low, while Opendoor was down by nearly 9% on the day.
The reason for today’s decline appears to be Offerpad’s second-quarter earnings report, which was released on Wednesday afternoon. And while the business remained profitable in the challenging real estate environment, sales came in significantly below analyst expectations. The stock also got hit with a few analyst price target changes, including one by Goldman Sachs, which lowered its target price on Offerpad from $4.75 to just $2.25 per share.
While this seems to be scaring investors, there was also quite a bit to like. As mentioned, Offerpad was profitable, with $11.6 million in net income on $93 million in gross profit. The company sold 2,888 homes in the second quarter and completed 3,500 renovation projects. Plus, a big part of the iBuying bull case depends on these companies buying and selling homes quickly, and Offerpad kept its average time from acquisition to sale below 100 days for the eighth quarter in a row.
Not surprisingly, Offerpad expects things to slow down a bit in the third quarter. It anticipates selling between 1,700 and 2,200 homes, which would be a 32% sequential decline at the midpoint.
While the fears surrounding the slowing real estate market are certainly understandable, there’s also a solid argument to be made that 2022’s housing market could actually be better for iBuyers like Offerpad and Opendoor than the red-hot market of 2021.
Some of the biggest competitive advantages iBuyers have over the traditional brokerage process have been nearly non-existent over the past year or so. For example, one perk of selling to an iBuyer is that you can sell your home right away and arrange closing on a date that works for you. Well, for much of the past year, homes were selling almost immediately in most markets and buyers had tremendous power to demand a closing timeline of their choosing.
When selling to an iBuyer, you also don’t have to worry about financing contingencies, but the market has been full of cash buyers. Finally, you don’t have to make repairs when selling to an iBuyer. But buyers have been so desperate to find homes, they’ve been willing to deal with properties in suboptimal condition.
In a nutshell, while the real estate market has certainly slowed, don’t be so quick to write off the iBuyers. As Offerpad CEO Brian Bair said in the earnings report, “As the market moves from a sellers’ to a buyers’ market, we expect to have greater access to inventory and new opportunities as one of the largest home buyers in the country.” We’ll have to wait and see how this plays out over the next few quarters, but this is an excellent opportunity for iBuyers to truly prove their viability as large-scale businesses.
Matthew Frankel, CFP® has positions in Goldman Sachs and Offerpad Solutions Inc. The Motley Fool has positions in and recommends Goldman Sachs, Offerpad Solutions Inc, and Opendoor Technologies Inc. The Motley Fool has a disclosure policy.