What is going on with the excitements of the last few days on Opendoor. Why all the excitement all of sudden? In this post, we will try to break down the bull case scenarios, and why Opendoor matters.

• iBuying:
  Opendoor is the only iBuying company left. Zillow and Redfin tried back in 2021 to also do iBuying but they couldn't make it profitably. Opendoor is the only company left doing actual iBuying.

Notes: This was before Eric jackson proposed an asset-lite model which I find super interesting. This was written before this.

• eCommercification:
  The bull case for Opendoor is current trend of "e-commercification" of the economy. It started with Amazon (books) in early 2000. Airbnb for short-term stays in 2009. Uber for transportation around the same time. There are only a few markets left such as used-car buying/selling (Caravan) and home buying (with Opendoor).

Back in 2022, Carvana was left for dead. I didn't see the opportunity back then, but Eric Jackson did call it on the compound and friends podcast in June 2022.

In hindsight, it was clearly a great comback story getting close to the 100x bagger status (8500+% from the bottom). Some of the best investments are often the non-obvious ones.

• Housing market:
  Housing in general is where people spend most of their money. When people make more money, the tendency is to upgrade their homes. You can see this clearly in markets where the job market is strong (Sillicon Valley, New York, Austin, etc...) where housing becomes more and more expensive.

• Real estate is the biggest asset class
  Residential real estate market is about 47.9T$ which accounts for ~28% of total household wealth. It is crazy to think that all those transactions are still all done manually with a 6% fee (with a realtor)

• Housing affordability is broken:
  In general, in the West, the housing affordabilty is broken. There are some structural changes that are driving this (immigration, regulations, etc...) but one way to create deflationary pressures on housing costs is with technology. This is also something the current Trump administration have been vocal about it and I wouldn't be surprised if they incentivize companies like Opendoor.

How can Opendoor help with housing costs?

• Reducing friction and make the market more liquid:
  This will allow better pricing (reducing the spread bid/ask). The same happened with the equity markets in the 1970s where the spread was about 1%. Those were due to :
  • Fixed commisssions: Those used to be 2% or more
  • LImited technology : Manual transactions
  • Low liquidity. The liquidity back then was much lower than it is today thus making the pricing more difficult.
  • Market structures : NYSE had human specialist who would set up the bid/ask spread to keep some margin of error (to help manage their inventory)

Today the spreads are closing to 0.01% for liquid stocks. Obviously stocks are very different since each house is unique.

• By having instant-cash offers (iBuying), it simplifies the decision making about selling your house. It would allow americans to become more mobile and overall help allocate the human capital more efficiently around the US. Even the WSJ had this article highlighting that the mobility of the americans is now at an all-time low.

• Assumable mortgages :
  This was proposed by [Eric Jackson] (https://x.com/ericjackson/status/1955344644339892286) for OpenDoor.
  This means if you have a 2% or 3% left on your house you can "assume" the mortgage of the current owner. Obviously, I wouldn't left a "random" buyer assume my mortgage and risk ruining my credit since the seller is still liable. If we could relax the regulations and transfer the liability to a trusted 3rd party (like OpenDoor) to manage the transaction and streamline the legal fees.

To be continued

PS: Huge credit to Eric Jackson. He's the one who made me realize about the potential of OpenDoor. I did remember listening to him back in 2022 on the compound podcast, and I remember being surprised about his picks. Back in 2022, it was easy to be stuck in the regency bias of all those tech stock crash.