- Don Mullen heads one of Wall Street’s largest homebuyers as the CEO and founder of Pretium.
- He’s no stranger to housing downturns, helping to lead Goldman’s “Big Short” deal in 2008.
- He said that iBuyers will be the biggest loser of this downturn. They may not survive it.
Don Mullen, the founder and CEO of Pretium, is no stranger to housing downturns.
He made money on both sides of the last one: helping to lead Goldman Sachs’ “Big Short,” which made “serious money” as the mortgage-backed securities market began to collapse in the fall of 2007, and then founding Pretium on the other side of it. His strategy to buy cheap homes and rent them out all over the country would become a prime example of the modern single-family rental industry.
In an interview with Bloomberg, Mullen doesn’t see nearly as much chaos in today’s housing woes, though pitfalls and opportunities still abound. The largest single-family rental operators will have an opportunity to grow, while smaller ones will “fall by the wayside,” he said. Mortgage operators will consolidate as their market collapses, and homebuilders will have to clear their inventory.
But no segment has a harder road ahead than iBuyers, who essentially flip homes with minimal renovations, aiming to make most of their money on transaction costs, Mullen said. Two large iBuyers are Opendoor and Offerpad, both of which saw their home prices drop when dumping the properties into a falling market last year.
“IBuyers will probably disappear completely,” Mullen told Bloomberg’s Sonali Basak. “I’d be surprised if they exist at all in 24 months.”
Mullen’s reasoning is simple. In today’s market, with most homeowners paying substantially lower mortgage rates than prevailing levels and mortgage delinquencies low, regular people aren’t likely to sell. That reduces the volumes that are central to the iBuyer business model.
The only forced sellers are iBuyers who need to sell homes to generate a profit, and to reduce their interest and other carrying costs. As a result, they’re lowering the prices for homes, and, according to Mullen, will be losing “25¢ to 30¢ on the dollar” as prices are being discounted 20% to 30% from their peaks.
Homebuilders, representing another industry that’s highly sensitive to housing market swings, are under pressure but can survive, Mullen said. Home prices are declining by single-digit percentages, but the homebuilders can weather the downturn because their inventory enjoyed sharp gains during stronger markets, he said.
Stepping back, Mullen’s read is that too many institutions got in at the top of the housing market.
“The most obvious example is iBuyers,” Mullen said. “Their stock is in trouble.”
In the case of Opendoor, its stock is down more than 90% from its top price in February 2021, and the company was compelled to lay off 18% of its workforce at the end of last year. Meanwhile, Redfin closed its iBuying division and laid off 13% of staff, and Offerpad just laid off 7% of staff while raising an additional $90 million to weather the storm.