Business

AI-Powered Home Flipping Still Unprofitable, Opendoor Now Realizing

Yuppie Capital

Apparently Zillow’s recent failure in the AI home flipping market wasn’t enough of an harbinger for Opendoor, the company reportedly lost money on 42% of their transactions in the month of August, according to Bloomberg, citing research from YipitData. The company has supposedly been optimized for volume, not specifically for profit. “By leveraging software, data science, product design and operations, Opendoor has rebuilt the service model for real estate and has made buying and selling possible on a mobile device.” But does the deed exist on the ledger, though?

This approach in and of itself will likely become increasingly more dangerous as the growing discontinuity in bid/ask spreads within the housing market is setting the stage for an absolutely nuclear repricing event. THAT’S (gonna be) A LOT OF DAMAGE. And to no surprise to anybody, the stock price has ostensibly foreshadowed the housing correction that we are likely in the middle of watching unfold.

Opendoor Technologies Inc, 1Y (source: tradingview.com)

In its last quarterly filing, the company has been able to narrow losses through Q2 2022. EPS in the three months ended June 30, 2022 were just ($0.09) compared to ($0.24) in the three months ended June 30, 2021. Although in a recent letter to investors in August, they warned that they are expecting to lose up to $175MM in adjusted EBITDA in the third quarter. The company had reportedly gotten in too deep in their home-buying spree in the early days of the frothiest mf bubble known to man, the most epic bull run in the history of the universe, whatever you want to call it: The 2021 Housing Hype Train. ALL ABOARD THE LIQUIDITY HYPE TRAIN.

Similar to the way that loan originators made an absolute killing back in ’08 just writing the most egregious loans known to mankind (again, just based on sheer volume), Opendoor operates in a similar fashion, just riding the liquidity hype train that was Federal Reserve induced housing price bid-up fairy tale land. But what a land that was.

Unfortunately, this era is (and has been to be completely frank) on its way out. With absolutely parabolic mortgage rates, and a dwindling Federal Reserve balance sheet in the advent of Quantitative Tightening (makes me sick), Opendoor will only be salvaging their good faith in the future. The severity of losses is still up for debate amongst analysts, but one can surmise that they certainly won’t be pretty.

30Y Fixed Rate Mortgage, 5Y (source: tradingview.com)

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