How fintech companies are easing the ‘high-friction process’ of buying a home: Analyst

Citi Research’s Head of Non-Agency MBS Strategy team Roger Ashworth joins Yahoo Finance Live to discuss how fintech companies are innovating when it comes to mortgages and home buying.

Video transcript

BRIAN SOZZI: Welcome back. The housing market slowdown hasn't stopped techies from trying to figure out how to make the process of buying and selling a home a lot easier. In a new report, Citi looks at proptech and how it's being developed to create a frictionless housing market. Roger Ashworth is the head of Citi's research non-agency MBS strategy team and helped compile the report. Roger, good to see you here. Talk us through, what is proptech, and what are some of the companies out there working on right now?

ROGER ASHWORTH: Hey, thanks for having me. I really appreciate this. This report is something we put out as part of a series focusing on the housing market. It's called the Home of the Future. Chapter 1 is looking at net carbon emissions, net zero carbon reduction in the housing market. Chapter 2, like you said, focused on fintech and companies looking to streamline various forms of the housing market and all sorts of transactions in and around it.

Some of the interesting parts of the report that we talked about, we talked about mortgage underwriting, which you don't really think about as a headline grabber. But there's a lot of process that happens in and around lending and mortgage lending, looking at borrowers' incomes, documentation, verification, and all sorts of other aspects of that whole process of enabling a borrower to get a loan to go buy a house.

Other aspects that are more headline grabbing, companies that are providing instant offers on homes. When you think about moving from one home to another, you have to sell one home. It's an emotional process. There's a lot of friction involved. And then you have to go buy another one.

This is-- there are companies out there looking to streamline that process by providing an instant offer to your home if you think about all the information that's happened over-- information democratization that's kind of happened over the past decade or so. It's one of the spaces where kind of technology is finally getting to the point where there's enough information out there and able to help streamline the process in a whole bunch of different ways with property information and transaction data.

BRAD SMITH: We're seeing the number of bids per home, that's lower right now. And it's been decreasing with the mortgage rates rising in this period of time. You know, how is that impacting where you're seeing the number of interested buyers and at what price they're still staying involved in the bidding process?

ROGER ASHWORTH: That's true. You know, like a lot of these publicly traded companies that do provide the instant offers on potential home sellers, certainly, they're providing upwards of-- some publicly traded ones are advertising they're putting out 2 million offers, but their [INAUDIBLE] raite is actually quite much lower than that.

And it's like you said. Existing home sales are starting to pull back. The affordability concern in and around the housing market is certainly something I keep track of as a research analyst looking forward to projecting home prices, because we're always worried about potential defaults and losses at some point in the future. But it's certainly something that we project out forward. And if you look at consensus estimates of existing home sales, we're talking in the neighborhood of 5 million homes per year. So certainly, there's some market share to be grabbed and help streamline the whole process there.

BRIAN SOZZI: What are some of the companies, Roger, doing this very well, and maybe some others not doing it well?

ROGER ASHWORTH: You know, I don't have any disclosures. I have to apologize there to talk names, but we certainly follow along with research reports where we do talk names. But yeah, there's certainly businesses that have succeeded and some that have pulled back in the industry.

And certainly, when you talk about the home buying transaction, these are large transaction amounts. It's probably, as a US consumer, the largest financial transaction you'll ever undertake in your life. And the potential for error and missing is certainly there in business decisions.

But on a go forward basis, we've already had a couple of public companies report profitable quarters in Q1. And it seems like the potential growth path is certainly large when you talk about the US housing market. Like, it's, like, a $37 trillion market. There's $26 trillion of equity.

There's a lot of actually other investment business models where companies are willing to, instead of taking out a second mortgage, they'll simply purchase a piece of equity for your home, for a share of that home price appreciation going forward. There's a lot of potential market share across the board and a lot of frictions that can be removed in the underwriting process in the real estate transaction process.

BRIAN SOZZI: The housing market's become a little more volatile, to say the least, Roger. As you know, with rates going up, has that slowed the pace of innovation in an industry like this?

ROGER ASHWORTH: We haven't seen too much of it yet. Historically speaking, it's been a high friction process market. But again, these companies are all starting off from relatively small sizes. I think the innovations really have started happening since 2015.

So the past five, six years, the potential growth for market share, in tech terms, total addressable market, it's quite significant, even when we talk about things like mortgage underwriting, and we're talking about the cost of a mortgage to be originated somewhere in the neighborhood of $8,000 to $10,000.

If you can shave off $1,000 or $2,000 of cost and help share-- and share some of that with the consumer and provide a better consumer experience, whether that be through apps and streamlined speed to underwrite and get people the money they need to buy a home, because as we all know, there's limited supply of housing on the market for sale, historically low levels, and days on market-- days to sell a home.

Though, granted, like you said, we might see demand for housing pull back a little bit. Still, the days on market is relatively compressed. And anything we can do to streamline that process is certainly appreciated.

BRAD SMITH: Roger, I understand that you also track some of the sales that are in the metaverse for real estate that is of a more digital nature here. But with the pullback that we've seen perhaps this crypto winter and even for a more protracted period of time, how has that impacted some of the people even willing to buy in a virtual reality for the Meta me, if you will, to be able to live when I can't even buy a home in the real life right now?

ROGER ASHWORTH: Yeah, certainly. That's been one of the parts of the report we discussed a lot and debated, actually, putting into this at all. But it's something that, again, we take these GPS reports, which stands for Global Perspectives and Solutions, and we get a chance to step back from our day-to-day investment recommendations and really just highlight some of the broad, big picture issues facing the US economy, or the global economy, for that matter, and the average consumer.

It's-- we just highlight these trends that are happening, try not to take too much of a stance on the metaverse, as you say. But yeah, there's other interesting aspects of various mortgage lenders looking to help people monetize that cryptocurrency. In other words, you can basically ring fence a piece of your crypto holdings and use it to go purchase a home as an effective down payment with a mortgage on the other side as well.