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It’s probably fair to say all eyes have been on Opendoor for a long time now.
But on Thursday, the company’s latest earnings report offered some good news for the iBuying bulls: Though Opendoor still lost money in the first quarter of 2022, it did make some significant progress relative to the two previous quarters.
Immediately following the company’s earnings report and investor call Thursday, Inman sat down briefly with CEO Carrie Wheeler to chat about what exactly is going on. And the takeaway from this conversation is in Wheeler’s view Opendoor’s losses should continue to shrink as it works through its older inventory and focuses more on homes bought after last year’s market shift.
Wheeler was, in other words, optimistic about her company and the iBuying model.
What follows is a version of that conversation that has been edited for length and clarity.
Your first quarter revenue and profit improved relative to the fourth quarter. How did you accomplish that?
It’s really about moving through the old book of homes. And we’re doing a little bit better on that than we had guided to. That’s part one.
Part two is the new book that we’ve been building into since the middle of last year is performing extremely well. It’s a combination of those two things.
The number of homes both bought and sold in the first quarter was lower than in the past. I know you mentioned on the call that this had a lot to do with fewer properties listed in your buy box. But talk to me about the scale of your activity. Is this where you see yourself operating for the foreseeable future.
Let’s frame what’s going on with acquisitions first of all. There’s two components. The first is overall market volumes are down. I probably don’t have to tell you that. But within our buy box, it’s down about 25 percent on new listings year on year. So that just means there are fewer true sellers in the system for us to engage with.
The bigger part of the decline in volumes that we’ve seen to date is how we’re managing our spreads. So we raised them late last year. We’ve compressed them a fair bit actually since then. But they’re still, relative to history, somewhat higher. And that just means our conversion is lower. So of the people we can engage with, we’re converting fewer of them.
That’s not a forever statement. We expect as the market stabilizes we will continue to compress spreads further. That’ll drive incremental contracts and conversion and what have you, and volume in the system. But right now that’s what you’re seeing.
You mentioned the market stabilizing. Do you have an opinion on when that might happen?
We think about how we optimize and manage our portfolio within a four- to six-month window for when we own a home.
I’d say right now, given overall macro uncertainty, what’s embedded in the spreads we’re operating with right now is some amount of modest home price depreciation in the back half of the year. Part of that is seasonality, that happens every year. And part of that is the band of uncertainty around where things could go, whether that’s rates or what have you, remains relatively wide. So we’re going to operate with caution.
I would say we have seen a fair bit of stabilization in the housing market this year. That’s why we’ve compressed spreads as much as we have. Home prices as of late have been appreciating month to month. The rate of clearance, which we describe as just the sell through of homes that are listed, has been quite strong. Obviously that’s against a backdrop of pretty short supply.
I would say it’s not getting much worse, but not getting better. It’s sort of bumping along.
Do you need a certain level of appreciation to function?
The short answer is we don’t. We can price up markets, flat markets, negative markets. If you look at our new book of inventory and how we’re performing, which we highlighted in the shareholder letter, we’ve priced all those homes since July of last year going forward when home prices were declining month to month.
We manage our expectations of home prices, via a spread, embedded in our offers. So we can price that. What’s hard about the business on occasion is if there’s a lot of volatility in prices, we have to price out uncertainty as well. But no we have no problem pricing no matter what environment we’re in.
Just yesterday the Fed hinted that their rate hikes might be stopping finally. Does that have a significant impact on you?
We need rate stabilization. We’re looking for rate stabilization. Said another way, we’d like less volatility, less uncertainty for consumers, to get sellers off of the sidelines. So rate stabilization, specifically mortgage stabilization, would lead to some stabilization in transaction volumes and prices would follow.
Again we don’t need home prices to be up and to the right necessarily to price them appropriately, but we are looking at it for the benefit of consumer psychology. And also just for transaction volumes, rate stabilization would be helpful.
The earnings report showed that loss per home sold mostly didn’t move from quarter to quarter. I assume that needs to move. How do you change that?
We have two very discrete books of business right now. We have an old book of homes that was created in June of 2022 and prior, and then we have a new book of homes that we started offering on in July. So I think about those as two very different buckets.
I think what’s overwhelming our results right now is selling down a static pool of longer dated homes. So just to give out the average of how you sell a book of homes over time, you sell your best homes first. The worst homes tend to be sold last. So what you’re seeing is that tail of the old book.
Going forward, we have a very good new book of homes that are performing ahead of expectations by a couple hundred basis points. So that’s just a mix issue you’re seeing right now. We indicated that next quarter will be the last quarter of contribution margin losses, in other words like negative unit economics. And that’ll reverse because the old book will be behind us and it’ll be all about the new book.
Talk to me about how the response is to Exclusives. How is that progressing?
We’re really encouraged by what we’re seeing so far. I would call it promising albeit early. On the buyers’ side these are homes you can’t get anywhere else. They’re not on the MLS. We’re seeing a lot of buyer engagement on the platform and within less than a quarter we’ve taken marketshare, listed marketshare, from zero to three percent.
On the seller side, what’s interesting is we’re starting to tap into a new segment of customers we’re going to call a latent seller. That’s someone who wants to see, timeline to be determined, they don’t want to list but they would love a bunch of offers. And they would love to transaction so long as it’s seamless. That’s an incremental cohort of customers we think. We think it expands the pie. It’s a different class of supply than we could otherwise get, a different set of customers than we could otherwise reach. So we’re pretty encouraged by what we’re seeing so far.