Inside the Carnage in Residential Real Estate and iBuying

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Left to right: Redfin’s Glenn Kelman, Opendoor’s Eric Wu, FTX’s Sam Bankman-Fried and Douglas Elliman’s Howard Lorber (Getty)

Home is where the heart is. This month is also where the heartache is.

November brought a wave of jaw-dropping bad news from some of the biggest players in the residential industry, all of whom are struggling to cope with the sudden change in the US housing market.

After a historic 2021 defined by record high mortgage rates, the unleashing of pent-up demand and a pandemic-induced luxury market dispersion, they now face a completely different and far darker reality.

Just consider the latest numbers from the Mortgage Bankers Association: Mortgage applications are down 70% year over year, with purchase requests down 41% and refinance requests down 87%.

Optimistic by nature and fond of moonshots, residential leaders are forced to make existential choices. Let’s break it down.

Redfin says “no mas” to iBuying; Hemorrhaging Money Opendoor

On Wednesday, Redfin announced it was ending its iBuying business, the home-based algorithmic company once considered the holy grail by many of the industry’s biggest players and corporate-backed startups.

“Maintaining a profit with rising interest rates would make our home offers extremely low,” a Redfin spokesperson said of its iBuying shutdown. The company also announced that it was laying off 13% of its staff.

Redfin’s decision to end iBuying comes about a year after Zillow ended its own iBuying business, Zillow Offers. When CEO Rich Barton walked into iBuying in 2019, he described it as an existential imperative for his business and compared it to Netflix’s decision to switch to original content.

“If we don’t learn to drill our own oil wells, we’re going to be cut off,” Barton told The News.

Two years later, faced with ballooning losses and a glitchy home pricing algorithm, Barton admitted defeat, declared nearly $900 million in losses and pulled out. Rivals like Opendoor rejoiced, predicting that Zillow’s exit would give them primacy in what could become a monstrously large company.

It can still happen, of course. But for now, what is monstrously important are the losses.

Opendoor said it lost nearly $1 billion in the third quarter, selling many of the 8,250 homes it traded during that period for less than it paid.

“Navigating a unique market transition in 40 years has been anything but easy,” Eric Wu, CEO of Opendoor, told shareholders.

Opendoor’s biggest remaining rival in the business, Offerpad, also had a tough quarter, losing $80 million, more than five times what it lost in the previous three months.

Profits from Anywhere plummet; Elliman in the red

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Ryan Schneider of Anywhere Real Estate (Realogy, Getty Images)

Anywhere Real Estate, considered by many market watchers to be the most disciplined large brokerage operator, said late last month that its profits had halved in the third quarter, with CEO Ryan Schneider pointing to a sharp drop in the volume of transactions. The company hinted that it would keep an eye out for other ways to cut costs, including monitoring the broader market to see if more favorable commission splits could be negotiated.

Meanwhile, Douglas Elliman reported a $4 million loss for the quarter, with chairman Howard Lorber blaming high rates for crippling buyers and sellers.

Lorber said comparing this year to 2021 “doesn’t seem to make a whole lot of sense” because last year’s stellar market “was something that I don’t think anyone really understands what happened, how that happened so quickly.”

The earnings call that the entire brokerage industry has been waiting for, that of Compass, takes place on November 10th.

Cryptocracy is collapsing

Tuesday saw a transaction that one observer described as “crypto’s Lehman moment”: FTX, the second-largest cryptocurrency exchange, valued at $32 billion in January, agreed to sell off at its highest big rival, Binance, for a song. Bloomberg predicts that existing FTX investors, including founder Sam Bankman-Fried, will be completely wiped out by the Binance bailout. (Update: The deal has now been cancelled.)

Why is this important for residential real estate? Well, over the past couple of years, a group of buyers have treated the luxury market as their personal fiefdom, given the wealth they have quickly amassed from crypto betting. The real deal dubbed them “the cryptocracy” and chronicled their splashy purchases of trophy homes.

It all adds up to “skyrocketing” wealth creation, said David Friedman, co-founder of the WealthQuotient platform. TRD at the time. But with FTX in tatters – Bloomberg estimates Bankman-Fried’s net worth plummeted by a barely believable $15 billion this week – and much of the crypto world in disarray, what is it? what will this mean for this particular group of buyers?

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