thanks, Shamu! your callout about RKT turned out correct as their earnings weren’t spectacular. PT’s have been adjusted to around the $13 level from what i’m seeing. probably a lot of the move today seems to be SPY correlated and the magic save-all of share repurchases. added this to my watchlist.
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It is crazy they hold that many houses in their portfolio. The value of their homes represents nearly 150% of the market cap of OPEN.
If home prices begin to decline in value due to rising interest rates, they may become insolvent as a company pretty quickly
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Why is that crazy? When your business is to buy and sell houses, you need inventory in order to make money.
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It makes sense if you put it like that. It just seemed crazy to me and made me reminiscent of the 2007 housing crisis.
On another note this was released today:
https://www.marketwatch.com/story/pending-home-sales-slump-for-third-straight-month-in-january-11645801451?mod=mw_latestnews&mod=article_inline
https://www.nar.realtor/research-and-statistics/housing-statistics/pending-home-sales
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This does not give a complete picture. OPEN had 17,164 homes in inventory last quarter. In Q4, they purchased 9,639 homes and sold 9,794 homes with an average contribution profit after interest of approximately $13,000 per home. On average, Zillow was literally selling homes for a loss.
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Thank you, this is quite helpful context.
DakkJaniels, I know you’ve looked into this quite a bit, wondering, do you think OPEN is getting closer to fair value? It dropped another 23% today. $5.7B market cap on $8B revenue, though they still have a loss. That mortgage apps are down is a concern, but I wonder if OPEN will actually survive this better than their brick-and-mortar peers.
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I would think “fair” value would be at least 1x revenue, but I guess the market thinks otherwise. Just strange to me how CRVA can put out similar numbers but be worth 5 times as much, when they are buying and reselling depreciating assets. I don’t know that mortgage applications being down are that much of a concern, considering OPEN has tenths of a percent (if that) of total addressable market. There is plenty of room for them to grow with market share. Regarding downturns, I also don’t see that being an issue - we probably just saw that this Q with the lower contribution margin. I think they will adjust their fees as needed to keep houses moving, they just need to turnover more houses.
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Good morning! I briefly touched on this in VC yesterday, and wanted to get it out on the forums as well. I’ve received a memo from the CFPB regarding their intended oversight of fair and accurate appraisals in residential real estate. Discriminatory home values are being blamed for undermining long term goals for fair housing and fair lending nationwide. I am interested to see how this is going to shape up - the GSEs have already implemented a pooling system of sorts (for instance, Fannie Mae has their Collateral Underwriter that rolled out in 2015, which performs an automated risk assessment on appraisals and returns a risk score, flags, and messages to the submitting lender. It will provide a risk score for the appraisal based on community comparative valuations).
Below are Director Chopra’s remarks on the matter:
“First, the CFPB will be taking an active leadership role in the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. Congress has assigned important responsibilities to the Appraisal Subcommittee, and it is important to live up to these expectations. In particular, we will be closely scrutinizing the work of The Appraisal Foundation, which wields enormous power to set standards and levy fees on the professional appraiser community.”
“In addition, along with other federal financial regulators, we will be working to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate. We have already begun to solicit input from small businesses in order to develop a proposed rule, and we are committed to addressing potential bias in these automated valuation models.”
“We will also be taking additional steps through our research, through our supervisory examinations of financial institutions and their service providers, and through law enforcement actions. We welcome input and engagement from the public, the professional appraiser community, and across the residential real estate industry.”
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Interesting article talking about the quickly rising mortgage rates and how it’s now creating even more of a demand on home buying as people want to get the low interest rates before they keep going up this year.
Last week, the central bank raised rates for the first time since 2018. In anticipation of the hike, the average 30-year fixed mortgage rate spiked from 3.11% in December to 4.16% as of last week, according to Freddie Mac. That upward swing isn’t over yet: Bankrate reports that as of Wednesday, the average 30-year fixed mortgage rate is 4.52%.
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Currently buying a house and can tell you this is happening in Austin. Our builder was telling us that as soon as they post about a new build they have offers or commitments to buy with a few days. The builder also said that they have supply and labor issues and have had to switch vendors for a bunch of stuff a bunch of times. Also it took them a while to get Whirlpool appliances.
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Similar story with my friend that had a new house built I think they completed it around a year ago. Basically it was grab a lot as fast as possible before someone else does. They couldn’t even give a final price for the home, they could only price it in phases due to the wild fluctuations and availability of materials. It also came down to the wire to get the appliances so everything could be signed off otherwise they were going to have to re-do the whole loan and it would have been a higher rate.
I’ve noticed a number of homes around here that were leases people have been moving out. I wish I got the chance to ask where they were moving to, that would have been interesting to know. Anyhow, only ONE out of probably half a dozen actually had a “for lease” sign in their yard, and even then every place had someone moving in within a week. No cleaning / fixup or anything, just move in as-is and it’s the new tenants problem.
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My buddy is a mortgage broker and is quoting people +2 points already
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sorry gonna be busy for the rest of the day, but just wanted to put this out there. there are a few analysts saying that real estate has reached bubble levels in the US (we’ve been in a bubble for 15 years in Canada). here’s an article suggesting home prices to decrease in 2022/2023:
https://www.businessinsider.com/housing-market-are-home-prices-going-to-drop-slow-down-2022-3
moreover, next week’s FOMC is going to give some direction on the Fed’s guidance for the 2.7 TRILLION in mortgage backed securities that the Fed holds. how fast are they going to try and get this off their balance sheet? unfortunately, right no one has the ability to take on even a fraction of these as the usual market makers (big financial institutions) have dropped out and hedge funds do not have the resources to take on that much risk. should the Fed decide to go ahead aggressively, prices will fall with the flooding of these securities to market.
any QT in the mortgage area would likely start in early May.
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Received this in my inbox the other day.
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