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The real estate slowdown is getting real – Protocol

Good morning, and welcome to Protocol Fintech. This Monday: the real estate slowdown hits proptech, crypto arbitrage, and JPMorgan Chase’s blockchain test.

Off the chain

You’ve heard of checking accounts: How about a blue-check account? Elon Musk’s plan to charge users for verification has at least one fan: former Twitter COO Anthony Noto, who offered to cover SoFi customers’ $8 monthly fees. The thing is, $96 a year to attract or retain a customer isn’t that much when you consider that SoFi spent $19.5 million on “member incentives” last year, more than it spent on direct advertising. The only thing I wondered was whether it seemed a bit vulturous to be making the pitch as layoffs loomed over Noto’s former colleagues.

— Owen Thomas (email | twitter)

It’s getting real (estate)

The real estate market has been hard hit by inflation and rising interest rates, as home buyers have pulled back in the face of increasingly unaffordable mortgage payments. Retail mortgage originations dropped 90% year-over-year at Wells Fargo, which is now reportedly contemplating layoffs. Online lenders and proptech startups are facing similar pain.

For companies that rely on the housing market, it’s a tough road ahead until interest rates and the housing market turn.

Zillow is betting on becoming a super app. The home-prices site beat analysts’ estimates for the third quarter, but its fourth-quarter outlook fell short. It also laid off 300 employees.

  • Zillow has finally finished selling off the homes that were part of its iBuyer experiment. It announced a painful exit from that business a year ago.
  • Zillow is now focused on building a “super app” that includes buying and selling services such as 3D tours for consumers. Zillow has a “relatively mature” advertising business, and its new approach has potential, but it’s too early to say if it will succeed, said BTIG’s Jake Fuller.
  • While the housing market is not pretty now, Zillow does have some bright spots, Fuller added: “[W]e would note that it is relatively well-positioned given a strong balance sheet, free cash flow, and a valuation that isn’t particularly challenging.”

Rocket’s mortgage operation is no longer soaring. Refis boosted Rocket last year: It processed more than double the volume of such loans than any other lender. But refinancings have cratered with soaring interest rates this year.

  • Rocket is focusing instead on new home loans and cash-outs. In the third quarter, Rocket’s mortgage loan origination was $25.6 billion, down 71% from $88.05 billion in the year-ago period.
  • CEO Jay Farner told analysts that Rocket’s size will enable it to survive the tough market: “As we are seeing significant capacity will continue to come out of the system, further industry consolidation will take place, and those who aren’t well capitalized will struggle with liquidity. In the end, only the strong will be left standing.”

Opendoor faces an overhang. The iBuyer doesn’t just face a real estate downturn among consumers; it also has to take on the risk of buying and selling homes itself — the enduring challenge of its controversial model.

  • Opendoor sold more homes than expected in the third quarter, but margins missed expectations as the company sold homes it bought before the downturn. That will continue to hurt margins in the fourth quarter and first quarter of 2023, according to BTIG’s Fuller. Opendoor said last week it would lay off about 550 employees.
  • Opendoor has slowed down its home buying, acquiring 8,380 homes in the quarter, down 45% from the year-ago quarter, showing the limited appetite for iBuying in a difficult environment. Still, Opendoor’s new Exclusives direct marketplace product, which the company aims to make more than 30% of transactions next year, lowers its costs of selling to less than 2% of revenue compared to an estimated 2.8% this year, according to Fuller.

Real estate tech companies face a tough slog in the current environment. Until inflation and interest rates show some real signs of dropping, the companies face both the challenges of all high-growth tech companies whose stocks have been hit, as well as the effects of the real estate downturn. “They’re doubly affected,” said Melody Brue, analyst at Moor Insights & Strategy.

As tech companies, their natural move is to try to innovate their way out of this. But in a high-risk environment, some consumers may want to stick to traditional real estate services from humans, Brue said. Tech can cut costs, but it’s much harder to build trust.

— Tomio Geron (email | twitter)

A MESSAGE FROM THE FINANCIAL TECHNOLOGY ASSOCIATION

Don’t miss out! Register today to hear some of the biggest players in fintech discuss the industry’s most pressing issues at the Financial Technology Association’s inaugural Fintech Summit: Shaping the Future of Finance. Produced in partnership with Protocol, all sessions of the event will be live-streamed on November 16th.

Learn more and reserve your spot here.

On the money

On Protocol: The DOJ seized $3.4 billion in bitcoin linked to a 2012 hack of the Silk Road dark web marketplace.

The two biggest crypto exchanges are fighting. FTX experienced an increase in withdrawals after competitor Binance said it would divest its holdings of FTX’s native FTT token. FTX founder Sam Bankman-Fried and Binance founder Changpeng “CZ” Zhao are also trading barbs on Twitter.

JPMorgan Chase made its first public blockchain trade. The bank issued tokenized $71,000 as part of a Singapore central bank pilot program exploring the use of DeFi in the banking sector, then traded it for tokenized yen with Japan’s SBI Digital Asset Holdings.

Federal Reserve rate hikes will cost credit card debt holders big. The latest hike will cost Americans with outstanding credit card debt more than $5 billion in additional interest over the next 12 months, according to an estimate from WalletHub.

Wall Street had a Block party. Block closed Friday trading up 11% after reporting earnings Thursday that topped expectations. Coinbase closed up by about 5%.

U.K. rules could cut into crypto marketing. Industry leaders say a pending requirement for crypto firms to follow local ad rules could add to an already complex process.

Overheard

Critics of an American digital dollar might be mollified by recent comments from Michelle Neal, head of the markets group at the New York Fed. “One of the most important aspects in our deliberations is that any form of a CBDC in the future would need to be intermediated,” Neal said at the Singapore FinTech Festival last week, adding that “a direct account approach would not be contemplated.” Some policymakers have resisted the idea of a U.S. CBDC if it meant the Federal Reserve creating and maintaining consumer accounts.

CFTC commissioner Kristin Johnson thinks crypto arbitrageurs are pretty skillful at their work — when they’re not outright frauds. “The uses of remarkably sophisticated trading technology in the digital asset ecosystem are, in fact, exceedingly competitive, particularly those strategies focused on capturing arbitrage gains or rents that, by definition, may be fleeting and elusive,” she said in a statement about a fraudulent crypto-arbitrage scheme.

Coming up

The AI in Finance Summit is Wednesday and Thursday in Toronto. The virtual and in-person conference is divided into Women in AI, AI in Finance, and Deep Learning tracks.

Affirm, Jack Henry, and Fidelity National Financial report earnings Tuesday. The Zacks EPS forecast for AFRM is -$0.82, where it was -$0.40 the same quarter last year. JKHY’s consensus is $1.40 versus $1.38 for the same quarter last year. FNF’s consensus is $1.54 versus $2.12 for the same quarter last year.

FICO reports earnings Wednesday. The Zacks EPS forecast is $3.74 for the quarter versus $3.13 for the same quarter last year.

Toast reports earnings Thursday. The Zacks EPS forecast for TOST is -$0.22 for the quarter, and was -$0.22 for the same quarter last year.

A MESSAGE FROM THE FINANCIAL TECHNOLOGY ASSOCIATION

Don’t miss out! Register today to hear some of the biggest players in fintech discuss the industry’s most pressing issues at the Financial Technology Association’s inaugural Fintech Summit: Shaping the Future of Finance. Produced in partnership with Protocol, all sessions of the event will be live-streamed on November 16th.

RSVP today.

Thanks for reading — see you tomorrow!

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