WEBVTT - Facing Fear in the Housing Market 0:00:15.316 --> 0:00:24.756 Pushkin. I always love talking about real estate. It's this 0:00:25.036 --> 0:00:29.596 nexus where all these huge macro factors like interest rates 0:00:29.596 --> 0:00:35.076 and demographics and technological change converge with the most personal 0:00:35.516 --> 0:00:39.356 micro thing in the world, your house, your home, the 0:00:39.396 --> 0:00:42.596 place where you live. And right now we are in 0:00:42.756 --> 0:00:46.996 a particularly interesting moment to talk about real estate. We've 0:00:46.996 --> 0:00:49.996 had a couple of years of wild price rises. Now 0:00:50.156 --> 0:00:52.316 mortgage rates are starting to go up really fast, and 0:00:52.436 --> 0:00:55.356 everybody is starting to get spooked. At the same time, 0:00:55.396 --> 0:00:58.476 you've got companies buying and selling houses on the internet, 0:00:58.716 --> 0:01:02.276 and huge sums of money slashing around, and an incredible 0:01:02.276 --> 0:01:10.556 amount of uncertainty and change and innovation. I'm Jacob Goldstein 0:01:10.636 --> 0:01:13.196 and this is What's Your Problem, the show where entrepreneurs 0:01:13.196 --> 0:01:15.356 and engineers talk about how they're going to change the 0:01:15.396 --> 0:01:20.356 world once they solve a few problems. My guest today 0:01:20.516 --> 0:01:24.236 is Glenn Kellman, CEO of the real estate company Redfinn. 0:01:24.676 --> 0:01:27.236 Redfinn has a website where you can look at houses 0:01:27.236 --> 0:01:31.516 for sale, just like Zillo, but Redfin also employs real 0:01:31.636 --> 0:01:34.316 estate agents all over the country to help people buy 0:01:34.316 --> 0:01:37.636 and sell houses. Glenn Kelman is my favorite person to 0:01:37.636 --> 0:01:39.996 talk about real estate with, and just one of the 0:01:40.036 --> 0:01:43.956 most candid, thoughtful CEOs. I know his problem is this, 0:01:44.556 --> 0:01:47.436 how do you sell a house online? You should get 0:01:47.436 --> 0:01:49.196 a better deal, you should pay a lower fee, We 0:01:49.196 --> 0:01:51.716 should use technology to make the whole process better. There 0:01:51.756 --> 0:01:53.956 should be someone who's totally on your side. And I 0:01:53.996 --> 0:01:56.116 know that sounds like a whole bunch of hocom but 0:01:56.236 --> 0:01:58.396 it's the whole reason I got out of bed this morning, 0:01:58.436 --> 0:02:03.436 and it's the truth. Glenn joined Redfinn in two thousand 0:02:03.476 --> 0:02:05.956 and five. Earlier in his life he almost went to 0:02:05.996 --> 0:02:08.996 medical school, not once, but twice, tried and failed to 0:02:09.116 --> 0:02:12.196 write a novel, and started and sold a software company. 0:02:12.556 --> 0:02:14.996 When he joined Redfinn, the company was a few guys 0:02:14.996 --> 0:02:17.196 in an apartment who had just come up with the 0:02:17.236 --> 0:02:20.756 idea of putting real estate listings on a map on 0:02:20.796 --> 0:02:24.636 the web, which obviously was a good idea. Wildly popular 0:02:25.076 --> 0:02:28.356 Zillo would soon follow, and before long looking at houses 0:02:28.396 --> 0:02:32.116 online became a national pastime. But Glenn wanted to go further. 0:02:32.436 --> 0:02:35.476 He figured, if we can put the listings online, why 0:02:35.476 --> 0:02:39.076 can't we do everything online? Why can't people look at listings, 0:02:39.156 --> 0:02:43.196 compare prices, make an offer, and buy a house online? 0:02:43.796 --> 0:02:46.516 And he actually started trying to make it happen back 0:02:46.516 --> 0:02:49.076 in the Auts, trying to get people to buy houses 0:02:49.116 --> 0:02:52.036 on a website rather than through a real estate agent. 0:02:52.476 --> 0:02:54.516 As he told me in our interview, it did not 0:02:54.716 --> 0:02:59.316 go well at first. There was almost no agent. There 0:02:59.396 --> 0:03:01.596 was someone who was willing to sign all the paperwork, 0:03:01.636 --> 0:03:04.756 but he was actually building a winery in eastern Washington, 0:03:05.196 --> 0:03:08.356 and he and I had a deal that, under no 0:03:08.476 --> 0:03:11.636 circumstance would he ever actually have to talk to anyone. 0:03:11.676 --> 0:03:13.916 He just wanted to sign the documents and be paid 0:03:13.916 --> 0:03:16.476 a small fee for doing so every month, And whenever 0:03:16.516 --> 0:03:18.316 I did have to call him because a customer had 0:03:18.356 --> 0:03:20.556 some gnarly question, he would say, what was our deal? 0:03:21.556 --> 0:03:24.436 I'm sorry he had his license or something. You needed 0:03:24.476 --> 0:03:26.836 him because he had the license. He had a license, 0:03:27.196 --> 0:03:31.756 and he was willing to sign all of these offers 0:03:31.796 --> 0:03:35.036 because you need a real estate agent to authorize the offer, 0:03:35.076 --> 0:03:38.116 if you will. But he didn't want to get into 0:03:38.156 --> 0:03:41.596 the messy business of actually giving people advice. And so 0:03:42.156 --> 0:03:45.316 the real issue was, first of all, people need guidance, 0:03:45.436 --> 0:03:48.796 and second of all, their real estate agents on the 0:03:48.836 --> 0:03:52.676 other side of the transaction. The seller's agent, the agent 0:03:52.716 --> 0:03:55.156 who was listing the house. Yeah. And so if you 0:03:55.196 --> 0:03:58.036 want to do something disruptive and cool and get into 0:03:58.076 --> 0:04:01.636 wired or fast company, you have to make sure that 0:04:01.676 --> 0:04:04.076 the the listing agent is cool with it. And we 0:04:04.116 --> 0:04:08.316 had not done that. So we had this revolt in 0:04:08.436 --> 0:04:11.796 Seattle all the real estate agents because suddenly thousands of 0:04:11.836 --> 0:04:14.116 people were on our website clicking a button to see 0:04:14.116 --> 0:04:16.356 a property, and the listing agent was being told that 0:04:16.396 --> 0:04:18.636 he had to show it and then later we would 0:04:18.676 --> 0:04:21.876 send him an electronic offer that was forty thousand dollars 0:04:21.956 --> 0:04:25.196 under the asking price, with no rationale and expect him 0:04:25.236 --> 0:04:28.676 to accept it, and that would tick him off. So 0:04:29.236 --> 0:04:32.396 for a bunch of reasons, it wasn't working. So what 0:04:33.316 --> 0:04:38.036 did you do? I just decided that whatever people want 0:04:38.756 --> 0:04:41.596 is what we will give them. And it doesn't matter 0:04:41.676 --> 0:04:45.156 whether the company's categorized as a technology company. What matters 0:04:45.556 --> 0:04:47.516 is that you got into real estate to make it 0:04:47.556 --> 0:04:51.996 better for people, and if what you're delivering isn't better, 0:04:52.596 --> 0:04:54.556 then you need to change it. And is what you 0:04:54.636 --> 0:04:58.356 realize that people want a real estate agent. I realized 0:04:58.436 --> 0:05:01.996 that some of what a real estate agent does people 0:05:02.036 --> 0:05:05.116 really love. They like it when somebody picks up the phone, 0:05:05.116 --> 0:05:07.756 they like it when somebody's really committed to selling their house. 0:05:07.836 --> 0:05:09.796 But there are parts of it that they absolutely hate. 0:05:09.796 --> 0:05:12.356 They hate the fee, They think it's a total rip off. 0:05:12.356 --> 0:05:14.636 They worry that the agent is trying to get an 0:05:14.636 --> 0:05:17.236 easy sale instead of doing what's in their best centrists 0:05:17.916 --> 0:05:21.036 And even now I am an unreconstructed hippie about that. 0:05:21.156 --> 0:05:24.316 It may be that there's a different way to serve customers, 0:05:24.356 --> 0:05:27.116 but I've never lost sight of the idea that you 0:05:27.116 --> 0:05:29.236 should get a better deal, you should pay a lower fee, 0:05:29.276 --> 0:05:31.676 we should use technology to make the whole process better. 0:05:31.756 --> 0:05:33.956 There should be someone who's totally on your side. And 0:05:33.996 --> 0:05:35.756 I know that sounds like a whole bunch of hocum, 0:05:36.156 --> 0:05:37.956 but it's the whole reason I got out of bed 0:05:37.996 --> 0:05:40.636 this morning, and it's the truth. So Glenn decides that 0:05:40.756 --> 0:05:44.116 Redfinn should do what technology companies try very hard not 0:05:44.236 --> 0:05:48.116 to do. Hire lots of people, not just programmers to 0:05:48.156 --> 0:05:51.916 make Redfin's website better, but thousands of real estate agents 0:05:52.036 --> 0:05:54.996 to put up lawn signs and drive actual human beings 0:05:54.996 --> 0:05:58.436 around in actual cars to tour actual homes for sale 0:05:58.796 --> 0:06:01.316 where you know they can whatever, turn on the faucets 0:06:01.316 --> 0:06:05.236 and talk about the water pressure, Glenn figures Redfin can 0:06:05.316 --> 0:06:08.676 use technology to help agents be more efficient, and that'll 0:06:08.676 --> 0:06:12.076 allow Redfinn to charge customers a fee that's about half 0:06:12.196 --> 0:06:17.316 what traditional agents charge, and very slowly it starts to work. 0:06:17.716 --> 0:06:21.596 Redfinn hires thousands of employees, revenue rises to hundreds of 0:06:21.596 --> 0:06:24.396 millions of dollars per year. The company goes public in 0:06:24.436 --> 0:06:27.876 twenty seventeen, and the whole time, Glenn is waiting for 0:06:27.916 --> 0:06:31.636 some cinematic moment when he'll know that he and Redfinn 0:06:31.636 --> 0:06:35.316 have finally made it. And by cinematic, I mean, in particular, 0:06:35.636 --> 0:06:37.716 he thought it would be like a Bruce Willis movie 0:06:37.716 --> 0:06:39.636 from the nineties. I used to have a model in 0:06:39.716 --> 0:06:45.596 my head, inspired by Diehard, that these guys are drilling 0:06:45.636 --> 0:06:49.956 through seven layers of security and a vault in Nakatomi Plaza, 0:06:50.076 --> 0:06:55.996 and the final layer is destroyed by the FBI because 0:06:56.036 --> 0:06:57.996 they knock out the power grid, and these guys are 0:06:58.116 --> 0:07:02.676 dancing around throwing money everywhere. And I just thought that 0:07:02.756 --> 0:07:05.236 someday Redfinn would feel like that, that I would have 0:07:05.236 --> 0:07:07.356 this one moment where it went from feeling like an 0:07:07.356 --> 0:07:10.836 embarrassing failure to a total success us. But instead we've 0:07:10.876 --> 0:07:14.236 just kept drilling. The seventh seal is broken the way 0:07:14.316 --> 0:07:19.836 the other seals are broken by just continued drilling. And 0:07:19.876 --> 0:07:23.036 as a result, I couldn't say when Redfinn went from 0:07:23.036 --> 0:07:25.196 being a failure to a success, and I'm not sure 0:07:25.196 --> 0:07:30.876 it's a complete success now because we're still drilling. Redfinn 0:07:30.916 --> 0:07:34.036 still drilling, still doing new things, trying to figure it out. 0:07:34.556 --> 0:07:37.836 One of those new things is a business called I buying. 0:07:38.396 --> 0:07:41.516 Redfinn got into I buying a few years ago. It's 0:07:41.556 --> 0:07:45.596 this business where a few big companies will basically buy 0:07:45.636 --> 0:07:49.516 your house for cash over the Internet, then turn around 0:07:49.596 --> 0:07:52.116 and try and sell it for a profit. I buying 0:07:52.276 --> 0:07:54.876 was in the news last fall when Zillo said they 0:07:54.956 --> 0:07:57.836 had lost hundreds of millions of dollars in just a 0:07:57.876 --> 0:08:00.356 few months in the iBuying business, and we're getting out 0:08:00.356 --> 0:08:03.156 of it. Later in the conversation, Glenn and I talk 0:08:03.276 --> 0:08:06.636 about what happened with Zillo and the risks Redfinn is facing, 0:08:07.316 --> 0:08:09.516 But before we got to that, we start out with 0:08:09.556 --> 0:08:13.236 some eyebuying basics. First off, who sells their houses to 0:08:13.436 --> 0:08:15.996 eyebuyers Like Redfin. There are people who want to sell 0:08:16.036 --> 0:08:18.116 a house while having to clean it up every day 0:08:18.196 --> 0:08:20.756 so that someone could tour it. They just want the 0:08:20.796 --> 0:08:24.716 money right away, and some of that is about convenience. 0:08:25.036 --> 0:08:27.396 You just want someone to buy at lockstock and barrel 0:08:27.716 --> 0:08:30.876 on the spot. Another reason that people do this is 0:08:30.956 --> 0:08:34.236 because they see the home of their dreams. They're bidding 0:08:34.276 --> 0:08:38.276 against cash investors, which has become increasingly prevalent, and they 0:08:38.356 --> 0:08:40.596 get the money out of their old place in three 0:08:40.636 --> 0:08:46.116 hours on a Sunday afternoon. And these eyebuyers provide that liquidity. 0:08:46.356 --> 0:08:49.316 We are the ones who say, listen, your house is 0:08:49.316 --> 0:08:52.356 worth about seven hundred thousand dollars. I think if we 0:08:52.436 --> 0:08:54.516 fix it up, we could probably sell it for seven 0:08:54.356 --> 0:08:56.316 hundred thirty seven hundred and forty. But we'll give you 0:08:56.396 --> 0:09:02.916 the seven hundred right now. And that has been wonderful 0:09:03.116 --> 0:09:06.316 for some people. But it's a trade off. You get 0:09:06.356 --> 0:09:11.076 a little less money for same day sale or a 0:09:11.116 --> 0:09:14.356 near same day sale. So when an eyebuyer buys a house, well, 0:09:14.396 --> 0:09:16.356 when Redfinn buys a house, is an eyebuyer, what do 0:09:16.396 --> 0:09:17.956 you do with it? We fix it up, get it 0:09:17.996 --> 0:09:21.236 back on the market, and sell it to another home buyer. 0:09:21.756 --> 0:09:24.676 So being an eyebuyer, you don't affect inventory you don't 0:09:24.716 --> 0:09:28.436 affect the amount of homes net that are for sale 0:09:28.476 --> 0:09:30.756 for people who want to buy houses and live in them, 0:09:30.796 --> 0:09:32.836 not at all. We're not going to sell the homes 0:09:32.836 --> 0:09:35.396 that we own to institutional investors. We're only going to 0:09:35.436 --> 0:09:37.436 sell them to families, so we're going to live in 0:09:37.436 --> 0:09:40.156 those homes. So I want to just kind of step 0:09:40.196 --> 0:09:43.116 back for a minute and recognize that I buying, this 0:09:43.236 --> 0:09:46.836 thing that you're doing is something that just suddenly appeared 0:09:46.876 --> 0:09:49.156 in the world a few years ago, and I want 0:09:49.156 --> 0:09:52.796 to ask you, like, why why did this come into existence? 0:09:52.996 --> 0:09:55.756 You know when it did. There's two or three things 0:09:55.876 --> 0:09:57.756 that kind of had to happen for IE buying to 0:09:57.796 --> 0:10:01.356 come into existence. Number one, all the pictures of houses 0:10:01.356 --> 0:10:03.916 had to be available on a website, because if you're 0:10:03.956 --> 0:10:06.276 going to price a property without ever setting food on it, 0:10:06.316 --> 0:10:08.436 you at least need to be able to preview all 0:10:08.476 --> 0:10:10.996 the photos. So step one is sort of the first 0:10:11.156 --> 0:10:14.556 wave of like what ordinary people I think think of 0:10:14.596 --> 0:10:16.556 when they think of real estate online. They think of 0:10:16.676 --> 0:10:18.916 redfin and Zillo and truly and just being able to 0:10:18.916 --> 0:10:21.476 go online, look at a map and click and see 0:10:21.476 --> 0:10:23.196 the house and click through the pictures. So that's the 0:10:23.236 --> 0:10:26.556 first thing, Yeah, okay, then step two and so the 0:10:26.596 --> 0:10:30.516 second step was just machine learning to process all this 0:10:30.596 --> 0:10:34.916 information and spit out a price. So redfin Zillo many 0:10:34.916 --> 0:10:38.556 other parties have these automated valuations that they publish on 0:10:38.556 --> 0:10:41.596 a website. And if you're able to do that for 0:10:41.676 --> 0:10:44.236 almost every address in America, sooner or later the question 0:10:44.236 --> 0:10:46.716 comes out, would you pay for it? Would you put 0:10:46.756 --> 0:10:51.716 your money? And then the third big change is that 0:10:51.796 --> 0:10:55.396 the cost of capital just radically changed, meaning it got 0:10:55.516 --> 0:11:00.316 cheaper for big tech companies to get money from investors. Right, yes, 0:11:01.316 --> 0:11:05.316 you told me a few years ago a story that 0:11:05.396 --> 0:11:09.236 I still think about all the time, not just in 0:11:09.276 --> 0:11:11.796 the context of I buying, but in the context of 0:11:13.436 --> 0:11:17.236 the economic world that exists. Now, do you know the 0:11:17.276 --> 0:11:20.756 story I'm talking about. I was talking to somebody I 0:11:20.836 --> 0:11:26.156 think representing money on the Middle East, and he said, well, 0:11:26.196 --> 0:11:28.796 we'd have you do some paperwork and then we'd give 0:11:28.836 --> 0:11:31.796 you this money, and we wouldn't really need an interest rate, 0:11:32.476 --> 0:11:34.756 we wouldn't really need an ownership stake in the company. 0:11:36.916 --> 0:11:39.316 And I said, well, why are you giving us this money? 0:11:39.356 --> 0:11:42.036 And he sort of said, I don't know, And I said, well, 0:11:42.076 --> 0:11:44.356 it's probably not even worth the paper cuts, all the 0:11:44.356 --> 0:11:48.036 diligence you'd have to do, we kind of don't need it. 0:11:48.596 --> 0:11:51.076 And then he said we really wouldn't need to do 0:11:51.116 --> 0:11:54.676 any diligence either, And then I said, Okay, this is 0:11:54.716 --> 0:11:59.356 getting seriously weird, and now, regardless of whether I'm going 0:11:59.396 --> 0:12:02.476 to take the money, I just want to understand what 0:12:02.516 --> 0:12:05.276 the heck is going on. Can you please just level 0:12:05.316 --> 0:12:08.156 with me? And that's when he said, I've got a problem. 0:12:08.636 --> 0:12:11.396 I'm getting on this pile of money. I have to 0:12:11.476 --> 0:12:15.596 deploy it. That was the word that he used. There 0:12:15.596 --> 0:12:18.076 are many sovereign states who have the same issue. They 0:12:18.116 --> 0:12:20.076 want to put the money into the US because that's 0:12:20.116 --> 0:12:22.116 considered a safe market. They want to put it into 0:12:22.156 --> 0:12:24.836 tech because that's sexy. And I am just trying to 0:12:24.876 --> 0:12:27.556 give you money. And it was like he wanted to 0:12:27.636 --> 0:12:30.836 be relieved of a burden, and then I needed to 0:12:30.836 --> 0:12:33.716 relieve him of that burden. And the reason it's important 0:12:33.716 --> 0:12:35.676 for I buying is that for the longest time, you 0:12:35.756 --> 0:12:38.636 never could get into the business of being a principal 0:12:38.716 --> 0:12:40.956 where you actually own the car or own the house 0:12:40.996 --> 0:12:44.156 that you were selling, because it's so capital intensive. And 0:12:44.236 --> 0:12:48.276 maybe five or ten years ago, tech just surmounted that 0:12:48.516 --> 0:12:52.996 huge obstacle. I want to own five or ten percent 0:12:52.996 --> 0:12:56.076 of all the houses in America. There's no way you 0:12:56.116 --> 0:12:59.036 could get the money for that, except there is. Like 0:12:59.116 --> 0:13:03.196 that would have been inconceivable in two ten, but in 0:13:03.236 --> 0:13:07.716 two seventeen there were people lined up to pay for it. 0:13:07.756 --> 0:13:10.676 And it means that we're really on the market. That 0:13:10.836 --> 0:13:15.556 suddenly we own a ton of houses, and it's very risky, 0:13:15.916 --> 0:13:19.876 and it's very capital intensive, and it means that we 0:13:19.956 --> 0:13:21.836 have to be right on top of the market because 0:13:21.876 --> 0:13:24.676 we'll trade up in good times and it's going to 0:13:24.756 --> 0:13:29.396 be a roller coaster ride to hell when the market collapses, 0:13:29.436 --> 0:13:34.636 and it does every once in a while. Is Redfinn 0:13:34.716 --> 0:13:37.436 about to go on a roller coaster ride to hell? 0:13:38.036 --> 0:13:40.396 In a minute, Glenn and I talk about where the 0:13:40.436 --> 0:13:49.916 real estate market is headed. That's the end of the ads. 0:13:50.396 --> 0:13:53.396 Now we're going back to the show. Redfinn currently owns 0:13:53.716 --> 0:13:57.716 hundreds of millions of dollars of houses scattered around the US. 0:13:58.036 --> 0:14:01.316 This seems scary given both the state of financial markets 0:14:01.476 --> 0:14:04.076 and the fact that Zillo recently lost a ton of 0:14:04.116 --> 0:14:06.956 money in the eye buying business. So I asked Glenn, 0:14:07.276 --> 0:14:10.436 could what happened to Zillo, happened redfin Well. The first 0:14:10.476 --> 0:14:12.876 moral of the story is that you have to acknowledge 0:14:12.876 --> 0:14:15.236 that it could happen to you, or it will absolutely 0:14:15.276 --> 0:14:19.756 definitely happen to you. So if you think somehow that 0:14:19.956 --> 0:14:22.596 your poof doesn't smell, or that you have a brain 0:14:22.636 --> 0:14:24.796 the size of a planet, it could never happen to you. 0:14:25.436 --> 0:14:28.076 That's the ubris that will cause you to fly two 0:14:28.156 --> 0:14:30.836 coast to the sun and end up holding billions of 0:14:30.876 --> 0:14:34.036 dollars in homes that you can't sell. So it can 0:14:34.076 --> 0:14:36.996 happen to us. But our thesis for why we can 0:14:37.036 --> 0:14:41.596 be different, it's just our ground game. So Zillo and 0:14:41.796 --> 0:14:45.996 redfin both focus on building websites. We've both been doing 0:14:45.996 --> 0:14:49.396 that for fifteen years. But in those fifteen years, Redfinn 0:14:49.396 --> 0:14:53.116 has also done all the hard work to sell houses, 0:14:53.236 --> 0:14:58.196 host inspections, attend to open houses, work with clients, and 0:14:58.316 --> 0:15:01.876 we've been through these terrible ups and downs that just 0:15:01.996 --> 0:15:06.676 being a website operator insulates you from. So, just to 0:15:06.676 --> 0:15:09.836 be clear, the distinction you're drawing here is Redfinn has 0:15:09.876 --> 0:15:12.956 real estate agents on staff all around the country and 0:15:13.076 --> 0:15:15.196 Zelo does not. Yeah, part of the reason that I 0:15:15.236 --> 0:15:18.356 got into eye buying. Is when I said I'm worried 0:15:18.516 --> 0:15:20.676 that it's too risky that we could get long on 0:15:20.716 --> 0:15:22.956 the market and own all of these houses right when 0:15:22.996 --> 0:15:26.276 there was a downturn. It's because Adam Wine, or the 0:15:26.316 --> 0:15:28.796 proponent of that business here at Redfinn, said, you're already 0:15:28.836 --> 0:15:31.156 long on the market. You've got thousands of people you 0:15:31.236 --> 0:15:35.276 have to pay, and if the market goes south, we're 0:15:35.276 --> 0:15:38.676 going to have to deal with that anyway. I tell 0:15:38.716 --> 0:15:41.356 the people running our eyebuying business that you are running 0:15:41.596 --> 0:15:44.716 on a knife's edge, that you have to have your 0:15:44.716 --> 0:15:47.076 finger on the pulse. I know I'm mixing all sorts 0:15:47.076 --> 0:15:49.996 of metaphors, but that's what business people do. The knife 0:15:50.196 --> 0:15:53.396 edges on the pulse of your finger sounds like a 0:15:53.596 --> 0:15:57.076 bloody outcome. You just have to be all over the 0:15:57.116 --> 0:16:02.476 market every single day, and you have to price in 0:16:02.556 --> 0:16:08.596 the risk appropriately. So in some markets we've priced ourselves 0:16:08.636 --> 0:16:10.796 out of the market where people have come to us 0:16:10.876 --> 0:16:13.236 wanting us to buy their house and we've said no 0:16:13.956 --> 0:16:17.156 because the price they wanted was too high. Yes, we're 0:16:17.196 --> 0:16:20.436 not sure where that house will trade three to six 0:16:20.476 --> 0:16:23.116 months from now. By the time those people pack up, 0:16:23.156 --> 0:16:25.036 we get the place fixed up, we get a sign 0:16:25.076 --> 0:16:27.876 in the yard, and we get it on the market, 0:16:28.676 --> 0:16:34.156 it'll be a very different housing market. So housing twenty 0:16:34.236 --> 0:16:38.316 thirty years ago was the safest investment my parents could 0:16:38.316 --> 0:16:40.676 think of. They were unwilling to invest in the stock 0:16:40.716 --> 0:16:43.756 market because they did want to compete against Wall Street sharps. 0:16:43.796 --> 0:16:46.596 And they told me that housing just goes up one 0:16:46.676 --> 0:16:49.076 or two percent every single year. It's where you should 0:16:49.116 --> 0:16:52.116 put your money. And now I think the housing market 0:16:52.276 --> 0:16:57.716 has more characteristics in common with the stock market. And 0:16:57.836 --> 0:17:01.316 part of that is because there's so much institutional activity 0:17:01.436 --> 0:17:04.276 in the housing market, and part of it is because 0:17:05.116 --> 0:17:11.956 there are also these platforms that provide much faster liquidity, 0:17:12.076 --> 0:17:16.076 much faster price discovery. So when we have a problem 0:17:16.076 --> 0:17:18.196 selling a house, we don't wait two months to come 0:17:18.236 --> 0:17:20.796 to grips with it. We mark it down right away, 0:17:20.916 --> 0:17:24.516 and everyone else on that block is disappointed that we 0:17:24.596 --> 0:17:27.476 move so quickly, but apart we're trying to stay ahead 0:17:27.516 --> 0:17:30.356 of them. And that makes the housing market more volvatible. 0:17:30.836 --> 0:17:33.716 So you have lots of real estate agents on the payroll, 0:17:34.036 --> 0:17:37.436 and you own a lot of houses, and we're at 0:17:37.476 --> 0:17:41.036 this moment in the housing market that seems I don't know. 0:17:41.156 --> 0:17:45.116 Pres you tell me precarious. So how do you navigate 0:17:45.156 --> 0:17:49.476 that potential problem with great humility if we have to 0:17:49.556 --> 0:17:53.996 choose between losing out on tens of millions of dollars 0:17:54.036 --> 0:17:58.236 in profits because we could have bought some houses and 0:17:58.316 --> 0:18:03.556 sold them for a profit, but there's also this risk 0:18:03.756 --> 0:18:09.196 that the whole market could disappear. We just decided to 0:18:09.236 --> 0:18:15.516 be more conservative as an eye buyer. Are you buying specifically? 0:18:15.556 --> 0:18:19.556 We're still buying. We're still buying properties. Are you buying fewer? 0:18:19.916 --> 0:18:23.116 We're more selective? I mean the first change in the 0:18:23.156 --> 0:18:27.676 housing market that you always see, and sometimes this confuses journalists. 0:18:28.836 --> 0:18:33.356 Beautiful houses, corner lots of light, still gets three offers, 0:18:33.756 --> 0:18:35.716 and you'll have a real estate agent say, I don't 0:18:35.716 --> 0:18:38.396 know why anyone's saying a housing market is softened. I 0:18:38.556 --> 0:18:43.996 just sold this house and had multiple bidders. It's the 0:18:44.036 --> 0:18:47.476 properties that aren't so pretty that suddenly have a problem. 0:18:47.516 --> 0:18:50.956 When you're really in a boom. The market isn't selective. 0:18:51.396 --> 0:18:56.476 Even the dogs sell for a song. But the first 0:18:56.676 --> 0:19:01.196 sign that the market has shifted is that middle tranche 0:19:01.236 --> 0:19:04.316 of houses that have a few problems, where the layout 0:19:04.356 --> 0:19:07.556 isn't perfect, where the price isn't quite right suddenly sit 0:19:07.836 --> 0:19:10.596 on the market, and those are the houses you have 0:19:10.676 --> 0:19:14.276 to be more careful about owning. And to be clear, 0:19:14.516 --> 0:19:17.396 is that happening now? Are this that middle trunch of 0:19:17.396 --> 0:19:19.796 houses sitting on the market longer? Now? Are we in 0:19:19.836 --> 0:19:22.636 that turn now? Absolutely? Does that give you information about 0:19:22.676 --> 0:19:28.076 what is likely to happen next? Yes? And no. So 0:19:29.236 --> 0:19:32.756 what I'm used to is a fifty basis point increase 0:19:33.116 --> 0:19:36.276 in mortgage interest rates. When that happened in twenty eighteen, 0:19:36.916 --> 0:19:40.196 there was half half a percentage point. When mortgage interest 0:19:40.276 --> 0:19:44.796 rates go up half a percent, the housing market has 0:19:44.996 --> 0:19:48.916 a major problem. That happened in twenty eighteen. It would 0:19:48.916 --> 0:19:52.036 have led to a housing downturn if the Federal Reserve 0:19:52.236 --> 0:19:55.676 hadn't backed off and mortgage rates hadn't come back down. 0:19:56.276 --> 0:20:00.796 This time, we're looking at not half a percent, but 0:20:01.036 --> 0:20:05.676 three whole percentage points increase in mortgage rates. Huge in 0:20:05.796 --> 0:20:11.556 relative terms, Yes, and so that is a massive shock 0:20:11.636 --> 0:20:13.956 to the system. There's so many buyers out there who 0:20:13.996 --> 0:20:15.276 thought they were going to be able to buy a 0:20:15.356 --> 0:20:19.596 home and can't. And I think what many observers don't 0:20:19.596 --> 0:20:22.036 appreciate about the housing market is how much it has 0:20:22.076 --> 0:20:24.676 depended over the past five years. On the stock market. 0:20:25.316 --> 0:20:28.716 We still talk about the ratio of income to home price, 0:20:29.436 --> 0:20:34.396 but people aren't using their wages to buy house. They're 0:20:34.476 --> 0:20:37.876 using their stock market portfolio. Some of them are paid 0:20:38.196 --> 0:20:41.396 in stock if they work at Google or Facebook. Others 0:20:41.516 --> 0:20:44.596 just have portfolios that are doing really well, and if 0:20:44.636 --> 0:20:48.596 that gets wiped out, you can't afford the down payment 0:20:48.636 --> 0:20:50.516 for a house. So we've just had a bunch of 0:20:50.516 --> 0:20:54.396 people who are in the market no longer be in 0:20:54.436 --> 0:20:56.956 the market. And I had always felt that even if 0:20:56.956 --> 0:20:59.356 the market cooled down, it would be healthy because there 0:20:59.356 --> 0:21:02.836 were so many more buyers than sellers. The price increases 0:21:02.956 --> 0:21:07.436 were fifteen twenty percent year on year, which is obviously unsustainable. 0:21:09.276 --> 0:21:12.316 Now there's some houses where there are no buyers, and 0:21:12.476 --> 0:21:16.036 those houses first are the ones that, as I said, 0:21:16.596 --> 0:21:21.396 do have problems. The perfect houses are still selling just fine, 0:21:21.436 --> 0:21:23.556 but there aren't that many perfect houses in the market. 0:21:23.996 --> 0:21:27.556 So you're going to just keep buying houses? As redfinn 0:21:27.596 --> 0:21:29.356 through this, how do we land this? Are you going 0:21:29.396 --> 0:21:31.036 to just take a pause and say, you know what, 0:21:31.116 --> 0:21:32.636 this is a bad time to buy houses. We're going 0:21:32.676 --> 0:21:34.636 to stop buying houses now or now we're going to 0:21:34.716 --> 0:21:38.716 buy houses, but with all the risk priced into the offer, 0:21:38.876 --> 0:21:40.756 and we're going to tell the people who are approaching 0:21:40.836 --> 0:21:44.276 us this is how we see the market. We might 0:21:44.316 --> 0:21:47.956 be wrong about it, and if you want to try 0:21:47.996 --> 0:21:49.996 to do better, we're here to help you with that too. 0:21:50.196 --> 0:21:53.716 We'll list the house and we'll test the market. And 0:21:53.876 --> 0:21:56.676 what surprised me is how many people say, actually, no, 0:21:56.916 --> 0:21:59.196 I'll take the money. Do you think house prices are 0:21:59.196 --> 0:22:03.236 going to fall? It depends on where, but in some 0:22:03.276 --> 0:22:09.316 places yes. So if you look at Idaho or Austin, Texas, 0:22:09.396 --> 0:22:13.756 sort of these secondary markets, where people leaving Seattle went 0:22:13.796 --> 0:22:19.076 to Idaho, people leaving La went to Austin, Texas. The 0:22:19.116 --> 0:22:23.876 home price appreciation there was twenty five thirty percent and 0:22:24.636 --> 0:22:28.836 that is going probably to come down. There are other 0:22:28.876 --> 0:22:32.316 places where I think it'll be more stable. There's still 0:22:32.316 --> 0:22:37.436 these powerful demographic trends. Millennials are moving, people are now 0:22:37.516 --> 0:22:41.076 free to work from wherever, and rents are still high. 0:22:41.276 --> 0:22:45.556 So rents are up fifteen percent year on year, and 0:22:45.636 --> 0:22:49.196 it doesn't give people many choices. Some folks say I'm 0:22:49.236 --> 0:22:51.996 going to step back from the housing market. I don't 0:22:51.996 --> 0:22:54.476 want to buy a place right now. And then they 0:22:54.556 --> 0:22:57.276 get another notice of a rent increase, and then they 0:22:57.316 --> 0:23:00.916 call us again. And so it's just a really tough 0:23:00.956 --> 0:23:05.356 situation for people looking to find a place to live. Yes, 0:23:05.756 --> 0:23:10.316 And so does that suggest that in that prices won't 0:23:10.316 --> 0:23:12.556 fall across the boarder won't fall that much? I mean, 0:23:12.636 --> 0:23:15.836