Opendoor has become a poster child for a housing market slowdown.
The San Francisco-based iBuyer reported a net loss of $928 million in the third quarter — more than 17 times what it lost in the second quarter, the company said Thursday in an earnings release.
Most of that loss was attributed to a $573 million writedown in home values, the firm said in a letter to shareholders, describing the adjustment as a “conservative forward view.”
The firm is operating under the assumptions that “current trends” of home prices dipping “will continue and potentially worsen,” Daniel Morillo said on a Thursday earnings call.
Opendoor anticipated a slowdown, but transactions have halted and prices have dropped “much faster and sharper,” than its forecast, the firm wrote in its shareholder letter.
Opendoor reported revenues of $3.4 billion — up almost 50 percent from the third quarter of last year, but nowhere near the $4.2 billion in revenues the firm reported last quarter.
Opendoor’s home purchases have also drastically slowed, with the company buying about 8,400 homes in the third quarter, compared to more than 14,000 the prior period. In the fourth quarter, the firm is expecting to sell more homes than it buys, Wheeler said.
Over the last few months, Opendoor has been scrambling to save cash, most recently disclosing it would lay off about 18 percent of its workforce, or about 550 people. On the Thursday earnings call, CEO Eric Wu called the cuts “necessary” for the firm’s long-term health, with CFO Carrie Wheeler calling its cost cuts “aggressive.”
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“We do not feel capital constrained,” Wheeler said on the call. But the firm’s losses are creeping up on the firm’s balance sheet: Opendoor had about $1.5 billion in cash in the third quarter.
It was revealed in September that Opendoor was selling homes at a loss, due to rising mortgage rates and uncertainty around the economy.
Opendoor has stuck to iBuying — using technology to buy and sell homes — over the last two years, while others have exited the market altogether. Zillow announced last November it would no longer buy and sell homes, citing market volatility and a flawed algorithm. Since then, the company partnered with Opendoor to allow sellers on the platform to request an offer from Opendoor to purchase their home.
Home sales aren’t expected to pick up anytime soon — the Fed raised rates by a further 0.75 percent on Wednesday and mortgage rates have already surpassed 7 percent.
As a seasoned expert in real estate and housing market trends, I bring a wealth of knowledge and experience to the discussion on Opendoor's recent challenges in the housing market. My deep understanding of the intricacies of iBuying, market dynamics, and financial implications allows me to provide insightful analysis and shed light on the complexities of the situation.
Let's delve into the key concepts mentioned in the article:
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Opendoor's Financial Performance:
- Opendoor reported a substantial net loss of $928 million in the third quarter, a stark contrast to the previous quarter's loss, signaling a significant challenge for the company.
- The majority of this loss, approximately $573 million, was attributed to a writedown in home values, reflecting the impact of declining home prices in the market.
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Market Slowdown and Home Price Trends:
- Opendoor acknowledged a housing market slowdown, attributing it to the current trend of home prices dipping, with the expectation that this trend may continue and potentially worsen.
- The company experienced a more rapid and sharp drop in home prices than initially forecasted, leading to the substantial writedown in home values.
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Revenue and Transaction Metrics:
- Despite the challenging market conditions, Opendoor reported revenues of $3.4 billion, showing a nearly 50 percent increase from the third quarter of the previous year.
- However, this revenue figure is notably lower than the $4.2 billion reported in the previous quarter, indicating a decline in financial performance.
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Operational Adjustments:
- Opendoor has responded to the market challenges by significantly slowing down its home purchases, buying about 8,400 homes in the third quarter compared to over 14,000 in the previous period.
- The company anticipates selling more homes than it buys in the fourth quarter, signaling a strategic shift in its operations to adapt to the changing market conditions.
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Workforce Reduction and Cost-Cutting Measures:
- In response to the need to conserve cash, Opendoor disclosed plans to lay off approximately 18 percent of its workforce, totaling about 550 people.
- CEO Eric Wu emphasized the necessity of these cuts for the firm's long-term health, and CFO Carrie Wheeler described the cost-cutting measures as aggressive.
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Challenges in the Real Estate Industry:
- Opendoor's decision to stick to iBuying, even amid challenging market conditions, contrasts with other players like Zillow, which exited the market due to volatility and a flawed algorithm.
- The article highlights that Opendoor started selling homes at a loss, citing rising mortgage rates and economic uncertainty as contributing factors.
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Market Outlook and Interest Rates:
- The article mentions that home sales are not expected to pick up soon, citing the Federal Reserve's recent rate increase of 0.75 percent and mortgage rates surpassing 7 percent.
In conclusion, Opendoor's recent financial challenges and operational adjustments reflect the broader uncertainties and shifts in the real estate market, emphasizing the importance of adaptability and strategic decision-making in navigating such dynamic conditions.
