Take-away: Opendoor is a tech company with artificial intelligence hard at work behind the scenes, so they are learning in real time from every bit of data input, every listing, every sale

A presentation by Dallas Opendoor was one of the most anticipated presentations at last weeks’ annual RAC (Relocation Appraisers & Consultants) industry conference at the Westin Stonebriar. The RAC is a group of active appraisers, recognized professionals in evaluating complex residential properties for relocation, litigation support, testimony and reviews. Jonathan Miller of Miller Samuel Inc. is current president. They are the folks who banks and individuals rely on before they mortgage a property or move across the country. They are the go-to’s for lawyers disproving an ex-husband’s claim they are penniless (when they own tens of millions in real estate). Founded in 1990, RAC members are the go-to people for complex real estate appraisals in the US and even abroad.

First, it was an introduction and explanation of Opendoor:  Opendoor (OD) buys real estate in the $125,000 to $500,000 price range in a few select markets quickly, rapidly: pack your bags and go. The company uses technology to flip homes and streamline the agent’s role. In fact, Opendoor employs salaried listing agents to market its properties, and forks over a 3 percent commission to buyer’s agents who come through the MLS should they bring a buyer. The company has garnered roughly $320 million in equity from investors, including its biggest shareholder, venture capital giant Khosla Ventures.  The company has raised $575 million in debt. Their ads are all over the Metroplex, aimed at consumers. (more…)

My friend Jonathan Miller is the one who really helped me see the light: the Case Shiller Index ain’t what its cracked up to be. It was designed for Wall Street, not to be devoured by the average U.S. consumer. There is a major lag time between the actual data and reporting. It doesn’t include new home sales or construction, which, I’ll grant, are no where near what they used to be, but do make a difference in our housing market where volume builders are still churning dirt. And it doesn’t separate distressed properties from non-distressed, like Core Logic does.

Still, it’s out today and it serves a psychological purpose, like it or not, accurate or not. How did Dallas fare? Really, flat as a pancake. Average home price $117,000. Up .02% from July to Aug 2011, but down 1.90% from same time last year. That number is so low it might as well be flat. If I’ve said it before, I’ll say it again: we are Japan.

Any good news? Actually, yes!

• Both the 10- and 20-City Composites showed an increase of +0.2% for in August versus July.

• Ten of the 20 MSAs covered by the Indices saw home prices increase over the month.

• 16 of the 20 MSAs and both Composites posted improved annual returns compared to July’s data.

• Don’t tell Al Hill III: Atlanta and Las Vegas saw their annual rates of change fall deeper into negative territory.

• Detroit and Washington DC were the only two cities to post positive annual returns of +2.7% and +0.3% respectively, Detroit because everything is so darn depressed, Washington because that’s the only city where values are holding.

• The Midwest is showing recent relative strength, thank God. Chicago, Detroit and Minneapolis have all posted very sharp monthly increases going back to May. (People swallowing distressed props?)

• It’s basically 2003: average home prices across the U.S. are back to mid-2003 levels. 

• Do not read this line if you bought during the boom or reach for the Tums first: measured from their June/July 2006 peaks through August 2011, the peak-to-current declines for the 10-City Composite and 20-City Composite are -30.9% and -30.8%, respectively.

 Another nail in the coffin of the struggling real estate recovery?

That’s Jonathan Miller and me in San Francisco at Real Estate Connect. I am glad we are friends because Jonathan is about the most quoted real estate consultant and expert these days, and one of the most knowledgeable appraisers I know. (I’ve given up on the PhD’d economists. Get me real people who work.) Money Magazine calls JM the “Best Online Real Estate Expert”; The New York Observer says he’s one of the 100 Most Powerful People in Real Estate; Inman News crowns him one of the top 25 most influential real estate bloggers in the U.S. and his blog, Matrix: Interpreting the real estate economy, was voted one of the top five U.S. real estate blogs. While I chatted with him in his New York office in June, Bloomberg, the Wall Street Journal and the New York Times called him within an hour. So when we got the news that Standard and Poors had downgraded the U.S. credit rating from Triple A to AA, the person I most wanted to call was Jonathan to learn. What the hec does this mean to housing?

Economic uncertainty, he told me, is the enemy of any housing market, especially given the existing weakness of the economy and the tightness of credit.  While no one really knows the extent of volatility in  the financial markets over the next few weeks caused by the S&P downgrade of US, the market may “pause”, placing additional downward pressure on  housing.  

Jonathan is aware of the relative strength of our Dallas market compared to most, but I don’t care if you live in Whisper, Montana — this kind of financial news affects EVERY market. Of course, we share the same view of Standard & Poors, the folks behind the Case Shiller report. Recall these are the idiots people who gave good ratings to worthless tranches of mortgages bundled together and sold off to investors who trusted them. I could not have said it better:

The irony of S&P’s decision to downgrade the US rating was their key role as enabler in the global credit boom and subsequent collapse that has caused widespread global economic weakness despite a $2 trillion dollar math error as well as their lack of liability for their past and future errors,” he said. 

And here’s the money:

“Rethinking of the power of rating agencies, their neutrality of compensation and accountability for their actions should be a first step in the repair of our financial system,” saidJonathan Miller, President/CEO, Miller Samuel.

So what can we expect? S&P knew the downgrade would slam the markets, which is why they reported it on a Friday. Miller thinks interest rates could rise, but the Fed has sworn to keep them low until 2013. Which he thinks is not so great. The real hurdle today is obtaining financing for a mortgage. Banks are not lending out that money they get from the feds. As Inwood Bank’s Gary Tipton told me: it’s like they are telling you to cook dinner but do it without any appliances. Banks don’t want to lend on low-return mortgages and they are requiring borrowers to go through quadruple hoops. Self-employed? Fohget about it.

Then we’ve got the looming uncertainty of Dodd-Frank. Credit has begun to ease in many sectors except for residential lending. And I swear I will not stop harping on this until the day I die: despite the bank bailouts in our post-credit crunch world, they ain’t lending. Now a compromised Dodd-Frank financial reform law opens a whole new can of uncertainty: at Inman’s Real Estate Connect, we learned there are yet 300 to 400 new laws and rules yet to be written by feds for Dodd-Frank. Uncertainty. Great piece in the Washington Post today about how Alan Greenspan may have started this “planned economy” in the 1990’s by focusing on markets, asset pricing and a nonsensical catch-all he called “investor confidence”: too much tinkering with the equity markets.

Today, we have uncertainty with a capital U. Washington can talk all it wants, but the turth is, lenders are still not compelled to lend. They still have way too much bad debt to deal with.

The Federal Reserve hopes to stimulate the economy by providing near 0% free money to lenders to keep interest rates artificially low. “Free” money: consumers are not seeing much of it.

So the banks are skating on thin ice. They really cannot lend to people with job insecurity, with housing prices threatening to slide even lower, and with foreclosures that may take years to work through. Aside: Jonathan tells me it takes THREE YEARS to work through a foreclosure in the state of New York, there’s so much red tape.

Banks prefer to borrow for free and make risk-free loans at 4%. Jonathan and other experts actually think higher interest rates might help us all. After all, the low rates are not helping. Why not raise rates a bit so banks will be incentivized to loan, argues Jonathan, since home prices are so depressed anyhow.

“The missing ingredient for a housing recovery is consumer access to credit, NOT low mortgage rates, ” he says.