Researcher Rick Palacios, Jr. ran an informal Twitter survey on Sept. 4, to gauge how crypto and non-fungible tokens (NFTs) might be impacting homebuyers and the housing market. He asked the question, “Have you or someone you know used profits from crypto and/or NFTs to help with the down payment of a home purchase?”
Palacios kept the survey open for 72 hours and received 385 votes. He was shocked, he said, when 20 percent of respondents replied yes, they had used profits from crypto and/or NFTs to help with the downpayment of a home.
Palacios is principal and director of research at John Burns Real Estate Consulting, LLC, a provider of independent research and consulting related to U.S. housing.
Here are 7 things to know about how crypto is impacting the housing market.
1. Survey results defied expectations on homebuyers using crypto
The price of Bitcoin has increased 263 percent in the past year and Ethereum has gone up 831 percent.
Heading into the survey, Palacios said he expected less than 5 percent — probably closer to 1 percent or 2 percent — of respondents to say they had used crypto towards the downpayment of a home. He was surprised by the 20 percent “yes” rate.
“Yes, the Twittersphere likely understands and uses crypto/NFTs more than the general adult population, but still, 20%!” Palacios wrote in an article for his company.
2. More Black people are likely to have used crypto than white
Results from a new Pew Research Center survey show that 16 percent of U.S. respondents say they have invested in, traded or used cryptocurrency. Black adults are more likely than white to say they have done so.
Since running the survey, Palacios said he spoke with housing and mortgage industry executives about the impact of crypto on the housing market. He concluded that the percentage of home buyers voluntarily documenting crypto accounts during mortgage underwriting has gone from almost zero a year ago to 5-to-10 percent today. Platforms such as Coinbase came up most often during his conversations with industry stakeholders, he said.
3. Homebuyers use of crypto as downpayment is hard to measure
It’s difficult to measure the extent to which home buyers are using crypto towards the down payment of a home.
“Most lenders and builders I spoke with (estimated) the percentage at roughly 5 percent or less,” Palacios wrote. “On occasion, 10 percent to 15 percent was noted, namely in higher price points and/or communities skewing toward younger buyers more familiar with crypto.”
Anecdotally, housing executives told Palacios that they thought the percentage of home buyers using crypto gains toward a home purchase was higher.
Most homebuyers don’t disclose crypto accounts since doing so is voluntary and not required, Palacios wrote. And most lenders do not have a consistent process for flagging crypto accounts during underwriting given the industry’s nascent state.
4. Mortgage underwriting makes use of crypto problematic for homebuyers
Twelve years after Bitcoin was introduced, some crypto investors are having a hard time using their increasingly valuable digital assets to buy a house.
“If you can’t document or it’s suspicious documentation, that can take you down a rabbit hole,” said Pava Leyrer, chief operating officer of Northern Mortgage, in a Yahoo Money interview.
Mortgage bankers are required to report any deposit that appears too big or out of the ordinary. “Crypto investments can easily fall into those categories, creating the need for further verification,” Janna Herron wrote for Yahoo Money.
The lack of identification on a cryptocurrency account can become an issue because there’s no way to directly connect the person to where the cryptocurrency came from. That’s a paradox, considering that a fundamental innovation of cryptocurrency is the blockchain, an online digital ledger used to record a series of verified public cryptocurrency transactions.
“Most home buyers are liquidating crypto gains well ahead of purchasing a home for the funds to appear ‘seasoned’ during underwriting (typically sitting two to three months in a traditional checking or savings account),” Palacio wrote. “This makes the process of deciphering crypto gains vs. traditional savings or liquidated stocks almost impossible, and generally not necessary for qualifying.”
5. Future of real estate will be on the blockchain
Real estate investment executive Adam Redolfi predicts that the future of real estate transactions will be on the blockchain. Redolfi is a managing partner and international real estate investment consultant at Barnes International.
“I am seeing more and more sellers and developers accepting cryptocurrencies as a form of payment,” Redolfi wrote for Forbes. “Four years from now, I predict that blockchain-integrated real estate will be implemented on a whole new level beyond payments in a digital currency.”
Earlier this year, a Miami penthouse was sold to an anonymous buyer for $28 million. It was paid for 100 percent in cryptocurrency, “making it the most expensive known residential crypto real estate transaction in the U.S. to date,” according to Redolfi.
6. The world’s richest man is investing in crypto-based real estate transactions
Amazon founder Jeff Bezos has backed Latin American property tech startup La Haus, a company that said it will accept Bitcoin from homebuyers for real estate transactions. The company allows users to buy homes through an app and pay with the digital currency. Its first transaction is a housing development in Playa del Carmen, Mexico. The company said it plans to open payment of the rest of its 80,000+ inventory of properties to Bitcoin, Bloomberg reported.
The company partnered with Los Angeles-based payment processor OpenNode to allow for transactions on the blockchain and over the Lightning Network, which is designed to make purchases quicker and easier. La Haus will act as an intermediary, paying the sellers in fiat.
La Haus raised more than $150 million of equity and debt from investors, including the Bezos Bezos Expeditions,fund, Acrew Capital, Renegade Partners, Kaszek Ventures, Nubank co-founder David Velez, and TIME Ventures, an investment fund for billionaire Salesforce founder Marc Benioff, according to Bloomberg.
7. Real estate industry is beginning to respond to demand for crypto payment options
Second-home real estate platform Pacaso said on Oct. 20 that it will accept cryptocurrency as a payment option through crypto payment firm BitPay. Pacaso customers can buy second homes with Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Dogecoin, Wrapped Bitcoin and other digital currencies, including five USD-pegged stablecoins, according to a company announcement.
“Digital currencies and the blockchains that power them are seeing increased adoption across the real estate industry, and a crypto payment option is a recurring topic in our conversations with prospective buyers of second homes,” Pacaso co-founder and CEO Austin Allison said in the announcement.
Based in Cincinnati, Pacaso was founded by former Zillow executives Allison and Spencer Rascoff. Buyers can use cryptocurrency as a down payment on homes and finance the rest or split the payment between crypto and fiat currency.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?