Mortgage rates fluctuating, banks collapsing, and homebuyers and sellers sitting on the sidelines have all contributed to a challenging housing market landscape in the first quarter of 2023. In this uncertain environment, two publicly traded iBuyers, Opendoor and Offerpad, have struggled to maintain their footing.
Both companies significantly scaled back their property acquisitions during the quarter, with Opendoor acquiring just 1,747 homes, down 81% year over year. Offerpad, meanwhile, purchased a mere 364 homes in Q1, representing an annual drop of 87%. This cautious approach raises questions about their ability to compete in an increasingly competitive market.
Despite reducing property acquisitions, Opendoor still recorded a 39% annual decrease in revenue to $3.1 billion, and the iBuyer reported a net loss of $101 million, compared to a net income of $28 million in Q1 2022. The number of homes sold by Opendoor also decreased, dropping 35% year over year to 8,274 homes. At the end of the quarter, the firm had an inventory balance of $2.1 billion, representing 6,261 homes, a yearly decrease of 55%.
Opendoor's executives were excited to report that the firm had resold 92% of its Q2 2022 cohort of homes, expecting the new book of homes to generate contribution margins in excess of their annual contribution margin. However, the overall financial performance of the company leaves room for skepticism about its ability to thrive in a more competitive environment.
Opendoor's Exclusives platform saw positive news, with almost 60% of sellers in its pilot market of Plano, Texas, enrolling in the program during the first quarter of the year. However, it remains to be seen whether this model can be successfully scaled and replicated in other markets.
Offerpad, the smaller of the two iBuyers, also reported weaker financial results for the quarter. Revenue was down 56% year over year to $609.6 million, and the firm reported a net loss of $59.4 million compared to a net income of $41.0 million in Q1 2022.
Like Opendoor, Offerpad also experienced a decrease in the number of homes it sold during the quarter, which dropped 55% year over year to 1,609 homes. But executives noted that 99% of the homes acquired prior to September 2022 were under contract as of the end of April. However, with returns at or above the firm's target range for homes underwritten in Q4 2022 and Q1 2023, executives expect margins and contribution margins to trend upward in the coming quarters.
Offerpad has launched several initiatives, including FLEX, which now has more than 100 agents enrolled; Direct Plus, which caters toward single-family rental companies; and Renovate, which provides renovation services on non-Offerpad single and multi-family homes. During Q1 2023, Renovate completed approximately 225 projects.
Although Offerpad aims to deliver the best solution for each individual's needs, focusing on providing a simpler and less stressful real estate experience, it is unclear if this approach will be enough to weather the challenges of an increasingly competitive market.
Opendoor and Offerpad have encountered significant hurdles in the uncertain housing market of Q1 2023. Their financial performance and scaled-back property acquisitions raise concerns about their ability to compete in a more challenging real estate landscape.
Both iBuyers have attempted to adapt by launching new initiatives and platforms to cater to different customer segments, but it remains to be seen if these efforts can translate into sustainable growth and (ultimately) profitability. As the housing market continues to evolve, the resilience and adaptability of Opendoor and Offerpad will be put to the test. Only time will tell if these iBuyers can successfully navigate the complexities of an increasingly competitive market and emerge as strong contenders in the real estate industry.
