5 ms·

Your last paragraph is pretty spot on. As for housing risk, we spend a lot of time on this. A few points: - Real Estate is very momentum driven and pretty slo

by jdross 11y ago

Your last paragraph is pretty spot on. As for housing risk, we spend a lot of time on this. A few points: - Real Estate is very momentum driven and pretty slow. Markets don't crash in a day, like stocks. The fastest price changes in 2008 were around 3% per month for non-distressed homes in Phoenix (liquidity drops, but doesn't disappear). Our model includes "insurance" that goes up and down as market conditions change, and we believe it is pretty effective. - Diversification by city matters a lot. Phoenix plunged in the recession. Dallas was flat. As we enter more cities, our inventory risk declines. - The risk of another housing collapse (versus decline) is small. Debt to income ratios are sane, banks remain very cautious to lend, and there is a massive buy-to-rent industry now, led by Blackstone, that came about during the recession and quickly buys homes whenever they cross a price threshold to return rental yield. If you're a technical person in SF and want to come by the office to learn more about our models and modeling pipelines (pricing, risk, days on market, etc) shoot me an email: jd@opendoor.com

roymurdock 11y ago
> liquidity drops, but doesn't disappear This would be the key sticking point - sure you could theoretically try to unload houses and close your positions at the first whiff of a downturn, but it seems to me that liquidity would dry up much quicker now than in 2008 (30% decrease in existing home sale volume from 2006-2007, bottoming out at ~50% decrease in 2010, so pretty drastic) given how much tighter the market is, as you describe yourself. You can also bet that Blackstone, who is effectively providing your business a baseline risk free rate of return right now, would immediately close their rent-to-buy fund if they saw any downturn in the existing house rental market, which is ultimately powered by consumer income strength. So if we don't see a meaningful increase in income, the tightness of housing liquidity would be my main concern in quickly offloading highly leveraged positions. My medium-term outlook is that we will see the verticalization of existing urban cores - SF, downtown LA, NY, Miami, Chicago, Cincinnati, etc. We had a great boom of prosperity WWII that allowed for an unsustainable amount of suburbanization. We are now entering an era of cost-cutting, scale, and efficiency: suburbs will lose population due to their relatively high maintenance costs - roads, grids, plumbing, delivery, transportation. I'm not sure if diversification is the right strategy.
uptown 11y ago
I've been following what you guys have been doing since when you were using the name HomeRun, and really like how you're trying to change the way real estate transactions function. Has OpenDoor considered the possibility of converting housing inventory you're "stuck with" during a downturn into rentals, or rent-to-buy, to weather a down-period, or is it better to just offload it to Blackstone and get it off your books?
- jdross 11y ago
  Yes, it's an option we've discussed. It obviously depends on liquidity in the market at the time and the size of the decrease. It's worth remembering that housing has only crashed like this twice in 100 years, and that a lot of investors made a lot of money in the last downturn, if they were smart. A good analogy may be CarMax, who shifted their mix in the recession towards distressed cars and ultimately kept revenue/profits reasonably consistent. Of note: This was at the same time car companies like GM and Ford were seriously at risk of bankruptcy.
DrScump 11y ago
<Real Estate is very momentum driven and pretty slow. Markets don't crash in a day, like stocks. The fastest price changes in 2008 were around 3% per month for non-distressed homes in Phoenix> A home in a non-distressed market losing nearly a third of its value in a year is "pretty slow"? That's a scary use of the term in itself.
- jdross 11y ago
  This was in a highly distressed market, and 3%/month was the most steep the fall got

by jdross 11y ago

roymurdock 11y ago

> liquidity drops, but doesn't disappear This would be the key sticking point - sure you could theoretically try to unload houses and close your positions at the first whiff of a downturn, but it seems to me that liquidity would dry up much quicker now than in 2008 (30% decrease in existing home sale volume from 2006-2007, bottoming out at ~50% decrease in 2010, so pretty drastic) given how much tighter the market is, as you describe yourself. You can also bet that Blackstone, who is effectively providing your business a baseline risk free rate of return right now, would immediately close their rent-to-buy fund if they saw any downturn in the existing house rental market, which is ultimately powered by consumer income strength. So if we don't see a meaningful increase in income, the tightness of housing liquidity would be my main concern in quickly offloading highly leveraged positions. My medium-term outlook is that we will see the verticalization of existing urban cores - SF, downtown LA, NY, Miami, Chicago, Cincinnati, etc. We had a great boom of prosperity WWII that allowed for an unsustainable amount of suburbanization. We are now entering an era of cost-cutting, scale, and efficiency: suburbs will lose population due to their relatively high maintenance costs - roads, grids, plumbing, delivery, transportation. I'm not sure if diversification is the right strategy.

uptown 11y ago

I've been following what you guys have been doing since when you were using the name HomeRun, and really like how you're trying to change the way real estate transactions function. Has OpenDoor considered the possibility of converting housing inventory you're "stuck with" during a downturn into rentals, or rent-to-buy, to weather a down-period, or is it better to just offload it to Blackstone and get it off your books?

jdross 11y ago
Yes, it's an option we've discussed. It obviously depends on liquidity in the market at the time and the size of the decrease. It's worth remembering that housing has only crashed like this twice in 100 years, and that a lot of investors made a lot of money in the last downturn, if they were smart. A good analogy may be CarMax, who shifted their mix in the recession towards distressed cars and ultimately kept revenue/profits reasonably consistent. Of note: This was at the same time car companies like GM and Ford were seriously at risk of bankruptcy.

DrScump 11y ago

<Real Estate is very momentum driven and pretty slow. Markets don't crash in a day, like stocks. The fastest price changes in 2008 were around 3% per month for non-distressed homes in Phoenix> A home in a non-distressed market losing nearly a third of its value in a year is "pretty slow"? That's a scary use of the term in itself.

jdross 11y ago
This was in a highly distressed market, and 3%/month was the most steep the fall got