Eric Wu is a cofounder and CEO of Opendoor.
Opendoor CEO Eric Wu says the company’s algorithm didn’t predict housing market shifting so quickly.
The quick market shifts rivaled those of the housing crisis of 2008, he said.
The company posted third-quarter losses of over $400 million.
Opendoor cofounder and CEO, Eric Wu, points to the unprecedented events in the housing market over the last few years as to why his company’s algorithm missed the mark.
“We’ve seen a once-in-a-40-year move in home prices on top of a move in velocity that we’ve actually never seen in housing,” Wu told Ben Thompson of Stratechery during a podcast interview.
The sharp changes in the market have been costly to Opendoor’s business model.
Home-flipping giant Opendoor buys homes from sellers and uses technology and data to alleviate the hassles of the home-selling process for users.
However, the steep moves in home-price appreciation, specifically, stumped Opendoor’s algorithm, according to Wu, and stalled any momentum the company had to finish 2022.
The 2014-founded company relies heavily on past housing data to help accurately price homes and make future predictions. Opendoor’s forecast did factor in higher interest rates, according to Wu, but not for home price appreciation to shift alongside it.
“Given the shift in the market, we certainly made a forecasting prediction that has not been accurate about the slope of the change in the past three months,” Wu said. “We were pricing in the interest rate movements” but didn’t also account for the dramatic shift in home prices, he said.
According to Wu, Opendoor tested previous market conditions, but the speed of the most-recent shift was far greater than previous shifts — including the 2008 financial crisis.
“We did have models that said that’s possible, but we didn’t say it was likely,” Wu said. “There was uncertainty about where the rates would end up and buyers just sat out. That was a shift that we hadn’t seen before in any of the back testing and any of the data that we analyzed from previous home price depreciation, even the [Great Financial Crisis].”
After this article’s initial publication, Opendoor reached out to Insider to clarify that the company’s “forecasting prediction” is based on their algorithm and human input.
Opendoor had a turbulent third quarter — cutting home prices to unload its inventory and laying off 550 employees.
The company posted revenue of $3.4 billion in the third quarter, up 48% from the previous year, but had a gross loss of $425 million, according to the company’s earnings statement.
Editor’s note: This story updates an article originally published on Nov. 19 with Opendoor’s comment. (Nov. 21)
Read the original article on Business Insider
Source:: Business Insider