Shares of AI-Powered Home-Flipper Disruptor-SPAC OpenDoor Destroyed

Another big investor that has backed out of the housing market: It’s now a net-seller.

By wolf richter For wolf street,

AI-powered home-flipper disruptor real-estate-tech company Opendoor Technologies went public in December 2020 through a merger with a SPAC. The SPAC was the creation of the “SPAC King” Chamath Palihapitiya. All his SPAC creatures have crashed. His media-savvy publicity and hoopla made investors who bought tickets to the show lose a lot of money, but it was an enormous amount of fun and worth every penny. And the show goes on.

Opendoor decided to stay in the home flipping business after Zillow saw what was coming in based on the vast amount of data, Bail was obtained at a heavy cost last year, Flipping profitably at scale is not a business model. It’s an expensive dream. Zillow woke up and went back to its roots, and its stock plunged 84% from its hype-and-hoopla peak.

But Opendoor has its roots in the noble activity of losing money in AI-powered home-flipping, and so it stuck with it and successfully lost a ton of money, including $928 million in Q3 2019 to $2.2 billion in Q3 2022. .

The loss in Q3 included a $573 million “inventory valuation adjustment,” where it wrote down the value of the homes in its inventory after the homes fell in price after they were purchased.

In other words, the company finds it will make huge losses selling those homes because home ownership prices have fallen — and because it overpaid the AI-powered genius for the homes.

It’s certainly a lot easier to jump into the market and buy a home when price doesn’t matter than it is to sell a home when price does matter.

All this must have been a good thing in earlier days When the free-money virus was still turning investors’ brains to a pulpWhen losses were equated with successes, and when great losses were equated with great successes.

Now the free-money virus is taking over, interest rates are rising, mortgage rates have more than doubled, QT has begun, and Opendoor is laying off 18% of its workforce — 550 people in total. CEO and co-founder, Eric Wu, asked his employees to explain the layoffs on November 2, saying, “The reality is that we are navigating one of the most challenging real estate markets in 40 years and we need to grow our business.” needs to be adjusted.” Lost money even in the hottest housing market ever a year ago.

The company has $7.1 billion in debt mortgaged by the homes in its inventory, the value of which has just been written down by $573 million.

and stock [OPEN] getting annihilated, long ago became one of my gods’ heroes broken stock, Shares are down 5.5% today to a new low of $1.64, and are down 96% from their February 2021 high – that infamous February when the whole show started turning bleak. But it has a big impact on the housing market.

Opendoor is another major investor in the housing market on the backburner!

Opendoor is a big buyer and seller in the housing market, and it’s getting crushed by plummeting home prices (the value of its inventory dropped by $573 million in the third quarter), and it’s losing a ton of money (the third quarter lost $573 million in inventory). lost $928 million in the quarter), and it’s reducing its home purchases, and it’s trying to reduce the homes in its inventory. It’s battered, and it’s bleeding out, and it’s trying to claw its way back from the housing market.

  • Home purchases halved in Q3: It bought 8,380 homes, down 45% from a year ago (15,181 homes).
  • home sales increased by 42%: In Q3, it sold 8,520 homes, compared to 5,988 homes a year earlier — more homes sold than homes bought.
  • 21% of its homes have been “on the market” for 120+ days From the initial listing date.

But inventories have fallen hard, and there’s a long way to go, At the end of Q3, it had 16,873 homes in its inventory that are now hanging on the market, and it’s trying to cut its inventory by reducing its purchases, but it only managed to reduce it by 3% (of 17,164 homes). was able to. inventory in Q3 2021).

In terms of impact on the real estate market: Opendoor helped pump up prices with its algo-buying over the past few years, and it now sits on about 17,000 vacant homes, for which it has to cut its purchases, and to become a net seller. need to find.

Opendoor has joined Other large institutional investors pulling out of the housing marketEach for their own reasons – Opendoor because its investors ran for cover, and it managed to lose money even in the hottest housing market ever (2021), and now the housing bubble has burst, and it’s losing huge amounts. So much money that there’s little hope of turning the AI-powered home-flipping disruptor into a self-sustaining business.

And large institutional investors are backing away from it which adds to the still ridiculously overpriced housing demand-issues the market faces.

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