Real estate stability and housing trends in the macro-economic environment

Published Date: March 14, 2023

Key takeaways

  • Real estate is resilient even when the stock market is not.
  • Experts agree we’re mostly through the worst of the housing downturn.
  • Corporate cost cutting is finally starting to pay off.
  • Discounted brokerage services continue to struggle to gain market share. 
  • Innovations in the consumer and financing experiences will drive further growth for companies.
I’m Spencer — entrepreneur, angel investor, business leader, co-founder and chairman of Pacaso. As the co-founder of two innovative proptech companies (Pacaso and Zillow) and an investor in over 20 others, I frequently share my observations and predictions for the economy and housing market with tech leaders, fellow entrepreneurs, media, the venture capital community and the general public on social media. In times of economic uncertainty, savvy buyers turn to real estate to park their money. Real estate holds equity. Historical data shows that luxury second homes hold their value and outperform the stock market during most recessions. Even when the stock market suffers, or when banks look wobbly, real estate is a real asset. While the greater macro-economic environment continues to fluctuate, many proptech companies continue to offer homebuyers, sellers and investors innovative products and services to drive growth and consumer confidence.I recently took a deep dive into some of proptech's recent earning reports and would like to share some of my personal observations specific to real estate, housing, and predictions within the greater macro-economic environment.

1. We are mostly through the worst of the recent housing downturn.

After digging into the earnings reports from Zillow Group, Redfin, Offerpad and Opendoor, most of these companies’ CEOs confirm what economists are saying about macro housing: 2023 won’t be a great year, especially for housing transactions, but pricing will be stable and maybe even trend up. Here are some perspectives from industry leaders in early 2023:

"We are seeing some early signs of stabilization, albeit at a meaningfully subdued level. Mortgage rates have come off their highs, home prices have continued to decelerate from their peak last June, and there is a looming backlog of homes under construction, both for-sale homes and rentals, which is likely to give some help on affordability."

— Zillow Group CEO Rich Barton on Q4 2022 Earnings Call

"What's most remarkable about this housing downturn is that the number of homes for sale hasn't meaningfully increased from the calamitous lows of the pandemic. Sure, the number of homes on the market at the end of January 2023 was up 40% since January 2022, but it was still at roughly half the pre-pandemic level it was from 2016 to 2019 during a strong seller's market. Our agents report that would-be sellers with 30-year mortgages at a rate below 3% are choosing to keep their homes instead of selling, either to live in or to rent out. This is why from May 2020 to May 2022, home prices increased 40% but have fallen only 3% since."

— Glenn Kelman, Redfin CEO

"We're continuing to see very low supply in the market, really multi-decade lows continuing. New listings are the lowest since 2004. So that's a good setup for more stable pricing in 2023."

— Dod Fraser, Opendoor PresidentPacaso data confirms this stabilization in second-home markets as well, as we’ve experienced increased transactions in January and February.  Deposits have increased 90% in the first two months of 2023, compared to the last two months of 2022. Pacaso is seeing homebuyers coming back now that they have adjusted to the newly higher interest rates of 2023. 

2. Cost cutting is starting to work.

Longtime unprofitable proptech companies like Zillow and Redfin are finally making a dent in their losses. 

"We sucked it up and cut costs on software for our real estate agents because that work is principally done. But the goose that lays the golden egg is investing in the listing search capability to drive more traffic and then in media to build our brand. That's the one place where we really suffered because we want to keep the top line moving. And so, we definitely have heard that other companies are leaning in and spending more. We're trying to have the best of both worlds where we spend more in the areas that will really drive growth and we spend less everywhere else."

— Glenn Kelman

"We feel good about the progress we are making across our growth pillars and believe investing against our targets while managing costs is the right thing to do across this business cycle to drive share growth."

— Rich BartonIn late 2022, I predicted that whenever tech revenue does bounce back, we’re going to see extraordinary profit margin expansion as a result of these widespread headcount reductions —and we’re already starting to see it. Profitability in earnings results is on the rise at Airbnb, Palantir, and soon others.

3. More consumer innovation is coming.

Zillow is improving its touring functionality and expanding natural language search options. ChatGPT-style search will soon be a feature at Zillow and other real estate platforms. Cross-partnership is also coming into play — Zillow and Opendoor, for instance, are collaborating to allow customers to seamlessly get an Opendoor quote directly from Zillow.

“Our first product road map update is touring. You’ve heard from us many times now that touring is a critical piece of the moving experience. It’s the point-of-sale, where shoppers turn into transactors.“And we know from all the data we see on a daily basis across our entire business that movers who request a tour convert to transactors at three times the rate of other actions on Zillow. Further, we believe improving the touring process is integral to building the seamless connected experience we envision. In late 2022, we rolled out real-time touring in Atlanta. Real-time touring is designed to make booking a home tour as easy as making a restaurant reservation online, a convenience that modern on-demand consumers certainly expect. We’re excited about the early signs coming out of Atlanta, which show real-time touring enables higher connection rates and higher customer propensity to work with our Premier Agent partners, which we expect to drive benefits up and down the funnel, delivering high-intent customers to our partners.”

— Rich Barton

4. Companies are prioritizing mortgage attach.

Redfin, Zillow and all the rest are laser focused on driving mortgage attach.Attaching a mortgage to a home transaction allows Zillow and the other players to monetize each transaction more efficiently. At scale, this will drive higher revenue without incurring additional cost. Zillow runs Zillow Home Loans, which is their internal mortgage lender, and Redfin acquired Bay Equity Home Loans in 2022 to build out its internal lending capability.

"We are bolstering our loan officer tools and capabilities so they can effectively handle our volume while providing a best-in-class customer experience. We’re building out two primary ways for customers to connect with Zillow Home Loans.The first way is financing first, when a customer gets pre-qualified before they are connected to an agent. We’re investing here because we know approximately 40% of all home buyers start their journey this way, and roughly 80% of our prospective mortgage customers don’t have a real estate agent. For many customers, financing is the most opaque and intimidating part of the home buying journey, and we want to help make it easier and more transparent on Zillow.The second way is property first. This is when our Zillow Home Loans lead comes back to us from a Premier Agent partner who was working with a home shopping customer we had previously sent them. We have integrated Zillow Home Loans into all existing connection processes across our four test markets."

— Rich BartonRedfin tested mortgage attachments at an event that brought together mortgage lenders and real estate agents:

"In the third quarter, 17% of our brokerage's fourth-quarter homebuying customers borrowed money from Bay Equity Home Loan. The pre-acquisition high was 8%. After our January company kickoff got each region's agents and lenders in the same room for the first time, that number surged to a projected 21% for this February.By getting the lenders and the agents in one room and just making sure everybody understands that when we work together, we can deliver more value to the customer and a better customer experience was probably what drove this uptick in attach rate.”

— Glenn Kelman

5. Businesses are monetizing the sell side.

After building their businesses on referring buy-side leads to paying agents (Zillow and or by closing leads with their own agents (Redfin), companies are now moving towards monetizing the sell side of their marketplace and focusing  on paid products for listing agents. Zillow’s new offering is being developed and bolstered by recent M&A.Zillow,, and Redfin’s partner agent business traditionally make money via buyer agents (agents representing homebuyers) and prioritize buy-side agents on their platforms. Today, real estate companies are trying to broaden their product offerings to support listing agents (agents representing homesellers) to appeal to everyone in the home transaction. Additionally, with a few major legal cases in the works that affect buy-side commissions, these companies are positioning themselves for any possible future. 

"Enabled by the small acquisition of VRX Media earlier this month, we launched listing Media Services through ShowingTime+, a photography service and comprehensive media package that enables listing agents to seamlessly deliver beautiful, immersive media for the homes they are selling. This service is a critical precursor to our upcoming listing showcase product, which we previewed last quarter. This product will differentiate a listing agent on Zillow through branding and a higher-quality listing that looks unlike anything else that exists on real estate sites today."

— Rich Barton

6. Discounting commissions will come to an end.

Redfin’s 10+ year experiment in offering a discounted commission to gain market share is getting close to its end. Redfin got its start as  a “discount brokerage,” offering buyers and sellers the services of an agent for less than the traditional 2.5-3% commission by refunding some of the agent’s commission. Over the years, they’ve found that their true value comes from providing the best possible experience to buyers and sellers  rather than providing the lowest-cost experience.

"Compared to 2022, we've already eliminated our refund to home buyers. This will add $1,000 to the revenue and gross profit of each brokerage transaction. We'll get another 500 basis points of gross margin improvement from the staffing changes that we made in 2022. Closing RedfinNow saves $20 million in gross profit losses."

— Glenn Kelman

7. Everyone is waiting for CoStar Group’s big move.

Whether it’s starting a $100M+ ad campaign for or reportedly trying to buy from News Corp for $3 billion, CoStar Group leaves many questions about what their next steps are. They are the elephant not yet in the room but waiting right outside the door to change the landscape.

Spencer Rascoff

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