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The iBuying Impact: Increased Efficiency or Another Housing Bubble?

With technology making the homebuying easier than ever, experts believe the practice of buying a home online could lead to “a far more efficient and affordable housing market — or another devastating bubble,” said Karl Smith, former assistant professor of economics at the University of North Carolina's school of government stated on Bloomberg.

“iBuying,” Smith notes, involves firms using algorithms to provide sellers with fixed-price offers on their homes. However, the seller is the one who has all the information, leaving buyers and investors cautious. Algorithms, however, can read disclosures, do market comparisons, evaluate timing, assess nearby rental vacancies and consider a host of other factors to arrive at an estimate of the house’s value, allowing iBuyer firms to give an instant price. 

According to Smith, around 5% of the homes sold in Phoenix, Arizona, were sold through instant buying last year, and investors own as many as 22,000 houses in the area.

As the market slows, these instant sales will become more popular, and more properties could end up in the hands of big investors. As this instant sale technology becomes more popular, “click-to-buy,” may pick up on the other end. 

“Together, these two technologies could serve as a kind of market-maker: A platform that allows buyers and sellers to find each other,” said Smith. “As an asset that can be easily bought and sold at known prices, real estate would be coveted by investors, who are willing to accept a lower return on their investment in exchange for the convenience of easy trading.”

With houses as easy to buy and sell as stocks, home prices are likely to rise, but this is dependent on the nation’s ability to build more housing stock. 

“In either case, emerging technology has the potential to radically transform the economics of housing,” said Smith. “It could lead to an expansion of supply, making housing more affordable; or it could result in the financialization of housing, the end of the owner-occupied era and new source of economic instability. Policy makers will have to keep an eye out for which scenario is emerging and what if anything they can do about it.”

About Author: Seth Welborn

Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.

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