The world moves fast. In the past 24 hours, both Opendoor and Redfin announced a temporary halt to their home buying operations.

Pausing Home Purchases

The current pandemic is truly a Black Swan event, and more significant and complex than a housing market correction. The iBuyer model was designed with counter-measures to counteract a correction, including raising fees, slowing purchases, and anticipating a slowdown before it hit.

The current situation is more extreme and uncertain. There are extensive public health considerations at play and varying degrees of lockdown and shelter in place orders, which may make all real estate transactions untenable for a period of time.

Redfin pausing its home buying activity is notable, but not nearly as big of a deal as Opendoor’s announcement. Redfin has many other sources of revenue; Opendoor does not. Opendoor was purchasing about 40 times the number of homes as Redfin.

While iBuying has certain advantages in a world of social distancing, those advantages don’t carry over to a pandemic or mass quarantine.

A Temporary Drop in Transactions

The data available shows that the current pandemic will likely cause a temporary, but dramatic, drop in overall real estate transactions.

The following two charts show property transactions in China during the early stages of the pandemic. Transactions dropped significantly -- 80 to 90 percent -- during a number of weeks during the crisis, but are now growing again.

Zillow’s recent research on pandemics shows a similar trend from Hong Kong during the SARS outbreak in 2003: Transaction volumes fell by 33-72% as customers avoided human contact (“avoidance behavior” like avoiding travel, restaurants, and public gatherings). After the epidemic was over, transactions snapped back to normal. 

The drop in transactions is immediate and severe, but appears to be temporary.

Opendoor's Glide Slope

By temporarily pausing the purchase of homes, Opendoor has shut off its only source of revenue; there’s no iBuying without buying. The effect is akin to an airliner losing both engines while in flight.

With no revenue -- Opendoor’s engines -- the company will glide until it either manages to once again generate revenue, or it runs out of money. Opendoor is not alone in this predicament; many businesses across a number of industries face the same challenge.

Opendoor won’t sit still. There are many smart people at the organization that are likely working around the clock to pivot, adjust, and invent new ways of doing business in this rapidly changing environment. When you have a business with over 1,000 employees on the payroll, waiting and hoping isn’t an option.