MON Property tech: home-flipping is out, mortgage services are in

There is a stalemate in the US residential property market. Many city centre office blocks are empty. Developers disdain turning them into housing at scale. Higher interest rates make mortgages less affordable. Sellers refuse to countenance price cuts.

The hiatus is weighing on housing tech companies. Seattle-based Redfin’s share price is down 90 per cent from its early 2021 high. Zillow stock has fallen 77 per cent. Venture capital-backed funding for so-called proptech dropped more than a third year over year in 2022, according to the Center for Real Estate Technology & Innovation.

A market rebound this year is unlikely. Mortgage applications hover at around a three-decade low, says the Mortgage Bankers Association. Despite the slowdown, hesitant sellers mean median prices fell just 3.3 per cent in March compared with the previous year, according to Redfin’s own data.

But lack of inventory means the property market is unlikely to repeat its financial crisis-era slump. Buyer demand remains high. If Redfin and Zillow can cut costs, they can ride out the stagnant market.

Both have quit the pricey house-flipping market, in which companies buy properties, make repairs and list them for a higher price. Both have shrunk their workforces, too. Redfin expects a net loss of $35mn in the second quarter on revenues of $275mn, according to Visible Alpha, down from a loss of $78mn the previous year.

Rising rates could also offer an opportunity to expand mortgage sales and connected services by using data to develop appealing digital products. Strengthening ties between property agents and home loans is key.

Mortgages remain a small, lossmaking part of Redfin’s business. But it is growing fast. Some 20 per cent of Redfin homebuyers use the company for a mortgage. If it can lift this “attach rate” to 30 per cent, it might add another $20mn or so of revenue.

Redfin’s challenge is clear: if it can keep a lid on operating costs, mortgages could become the third-largest part of the business and the only one to report a profit.