The Great Disruptor Hibernation Continues

When the market turned in mid-2022, many real estate disruptors began the long and painful process of reducing expenses, laying off staff, and reorienting their businesses to a new, challenging reality.

Why it matters: A year and a half later most disruptors are still around, but remain a shadow of their former selves and have yet to show signs of emerging from hibernation.
Dig deeper : The pre-2022 low interest rate environment was a breeding ground for real estate tech disruptors that relied on a financial component as the core of their product offering and business model – using cheap money to solve consumer pain points (iBuying, Power Buying).

• Because of this, many disruptors operate in the mortgage space and hired mortgage loan originators (MLOs) to service their customers.
  

• And as these companies rightsized to a high interest rate environment, they slashed their MLOs anywhere from 50 to 85 percent (and in Opendoor’s case, down to zero).

Zillow has been the outlier , accelerating the hiring of MLOs for Zillow Home Loans since February ‘23, at the same time its smaller peers have been shedding the same.

• This is both a clear signal of intent around Zillow’s plans to build Zillow Home Loans, and a powerful demonstration of the benefits of having a strong balance sheet.
  

• Read more: Zillow Still Crazy About Mortgages .

Arch-disruptor Opendoor , meanwhile, has embraced reality by significantly reducing the amount of homes it’s acquiring – all in an effort to streamline the business.

• Opendoor’s purchases have stabilized at around 1k per month – orders of magnitude lower than the highs of ‘21 and ‘22 – but with a recent uptick as the company aims to double its monthly acquisitions.
  

• The goal appears to be refocusing the business on the core iBuyer proposition after years of adjacent distractions (like Opendoor Home Loans).

The bottom line : For many disruptors – private companies that don’t publish much data – MLO count remains the best leading indicator of demand for their services.

• For the time being the disruptors are still in hibernation mode, but if and when the tide begins to turn, MLO count should begin to tick upwards.
  

• And by that time, the surviving disruptors will be battle-hardened with more nimble and streamlined operations, better product-market fit, and on stronger financial footing with more rational business models.