Algos are going to ruin the housing market

Author: Adam Button | Category: News

The next time you buy a house, you will be bidding against an algo

Wall Street style algorithms are coming to the housing market.

The WSJ writes today about how computer programs are being used to scan real estate listings in Phoenix in programmatic house flipping.

"It's the dawn of e-commerce for real estate," said Zillow Chief Executive Rich Barton. "Phoenix is ground zero."

On the face of it, this isn't all bad. It's tough for someone who is buying a home to find a good deal but it also might help someone selling get full price. The issue is that there is a middleman right now in the algo firm that buys at the cheap price, then sells at the proper one. So all the 'savings' get gobbled up. Moreover, people who are buying with conditions like obtaining mortgage financing are losing out to all-cash bids from companies.

In addition, new firms are using it to find rental housing which is a growing industry that's going to reduce the number of owner-occupied dwellings in the long run.

Finally, this is going to beg for regulation if/when house prices rise again.

On the upside, this kind of thing is going to hasten the demise of realtors.
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