#AIS: Divvy Homes CEO Adena Hefets breaks down the state of the US housing market
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Awesome hyper one. My name is a da on the C, E, O of D, V. Homes is the pleasure in each all.

Thank you for being here.

Rain man.

give me time. We open to the fans and just got.

Oh, right, so while they're pulling that up, I will just kick IT off to get started. S for about three hours behind. At this point, my passions are at the the crossroads of finance, housing and in inequality.

And trying to solve all these, i'll get into what my company does at the very end of the presentation. That's now what I really want to focus on. But I want to start off with a little story that I think explains why this is so important to me.

When IT was about the nineteen and eighty, my mom decided to go on a little road trip with her friends, and he was in israel, and he was backpacking, choose t hiking. And a man picked her up. Uh, SHE got him to that car and fell in love and got pregnant.

That man is mine. My dad, my mom and dad quickly got married, immigrated back to the us, and found themselves very Young, twenty one and twenty four pregnant, and try and figure out what they were going to do with their life. They couldn't get a mortgage to buy a house and settled down and be able to raise a family.

But they were fortunate enough to find a woman who gave the seller financing on their house. And so this woman finance the purchase of the house. So let my parents pay an instalment. And in that house they had three additional kids, are in the third of four.

And then eventually we were able to get a mortgage, take cash out of that house and use the cash that they took out to pay for all four kids to go to college. And I tell you this because to me, this is the heart of the american dream, which is being able to provide a Better life for your children than what you actually have. And so, so much of what we're going to be talking about here is why that american dream has disappeared for so many americans.

And what we are to we are doing to try to dress up. So let's start in. I have these bright blue slides. The goal is just give you to take a way you don't have to figure that out. I try to stick to one chart per sides to keep IT super simple, and i'll explain IT.

But this is the the takeaway that you should get from the next couple of data point i'm going to give you, which is wealth inequality is rising across america. I think I will know this chart, which is that ninety nine percent of wealth is owned by the top fifty percent in the bottom fifty percent only on one percent of wealth here in the united states. So this this distribution of wealth by what your your household income is to the top ten percent of owners, starting the top ten percent on seventy six percent of wealth, and next forty percent on twenty three percent of wealth, you sun that up ninety nine percent of wealth and by the top thirty percent.

And what's even more interesting is that the richer are getting richer, while the poor kind of stay the same levels. And so what this chart actually shows its income percent tile. So on the X, X is the zero is, if you are the very bottom end of the incomes spectrum, a one hundred percent, you're at the top end.

And then the blue line is how much income or family household wealth you had in one thousand nine hundred and sixty three, almost fifty years ago. And the yellow line shows how much wealth you have today. So if you were in the top one percent, your household walk was on average two million dollars fifty years ago.

Today it's about ten million dollars or a five back growth. And if you were in the bottom fifty eight percent time, you haven't seen your households income change us at all. And so you might be asking OK, lize this.

The case is, is that wealthy people are making more in salary. I I would say while there are some salary differentials, the main drivers is asset appreciation, access assets. And when I say asset to and use that pretty liberally, IT can mean stocks, IT can mean housing.

IT can mean small businesses, direct investments. But all of that in a group together as investment in assets. And so you can see this is A A really simple chart where I took what were the twenty year returns by income as well as asset.

And you can see that household income has not appreciated much in the last twenty years, whether the S M P. Five hundred as well as if you equating in your home, you will see an increase in your value of over one hundred percent. You want to see something even crazy.

You get left join your home equity, which is something that most of you some of you might get get uh, leverage against your equity. You miss the stock market of most of you are in. You can actually lever up your home equity, right? And so you can take our debt that's cheap because it's bat and arangement by the government, eighty percent leverage at what has been in most of three percent cost of capital.

No one else can get that sort of cost of capital at that sort of leverage. Um you're forced to advertize. So you build up savings in the property and the house has dual utility. You cannot live in the p five hundred.

You can live in a whole.

And so if we click on and so the takeaway has to be those who in assets are more likely to have a higher network. And so this is a chart that I sold from the new ork time, so critical as to them. But if you look on the left hand side, the blue bars, all of the bars kind of sum up to two, one hundred percent going across.

So the blue bar is the percent of family. So bottom, fifty percent. Tile of income, ernst, fifty percent, fifty, eighty eight percent till thirty percent so on. And what this is the second is at the bone, fifty percent of of families and household on one percent of overall equities in the market.

And when you look at directly held stocks, so stocks in the stock market, they own zero percent, right? And if you look at the top one percent of of of income earners, they own thirty eight percent of overall equities, which includes like retirement accounts. And everything remembers that that big asset class, and they owned fifty one percent of all directly health stocks.

So if you ask, why are the rich getting richer? R IT. Is because they own assets. Assets compound over time.

There is also a ton of tax benefits around downing assets, long term capital gains, which sure you all know. Another way to look at this, which I think is really interesting, is your net worth by rta versus homos. Commoners, on average have seventy five times than that worth of a renter.

This is all sensus data. It's all publicly ly available and happy to share IT. And I think what is is so interesting here is that i'm not saying the answer is whole. You want invest in crypto, great. You want to put your money to thousand and five hundred even Better.

However, the majority of americans as you just uh, on this lide, don't invest in equity as much, right? It's just hard to conceptualize whether a house is actually pretty easy to conceptualize. And because the debt advertized you're forced to save over time, it's highly illiquid.

It's hard to take your out of IT. IT is what makes a great investment. And so when you look at why this charted so hi, it's not because home on us are saving a tremendous amount more, right? It's they're saving they're putting money into the equity of the home.

They're being forced to in their payments. So despite the benefits of home ownership, IT is starting to become fundamentally inaccessible. So this is a chart really simple of of average home Prices. There's a bunch of different ways in different sources.

You can measure home Prices be you can see that at the bottom of the recession, which was actually twenty twelve for home Prices, the average home Price in amErica was a sixty three thousand dollars um and that today is closed for three hundred and thirty eight thousand dollars. That's a two hundred percent increase in ten years. At the same time, real median income has only increased from about fifty seven thousand dollars to sixty seven thousand dollars.

Um so what is cause Prices for homes tinkering so dramatically? If I have do i'm pretty sure that none. This is new news. You all have been seeing how much chm Prices have reason for those of you who have bought at a while interest state for three, we're still three percent good on you because that is probably the lowest we're going to be really, really long time.

But here's the quick history which is um from two thousand to two thousand and eight we were building on average one and a half billion homes at million homes a year, not billion dash went to have million homes a year and that equated roughly four to five months of inventory months inventory mean that if there were no more homes that were put on the market, how long would that take to sell all those homes four to five months? And that generally considered a baLanced real state market. Then what happened? The global financial crisis.

There was a mass number of foreclosures. The market was completely flooded, and all of a sudden you could buy an existing home that was going into foreclosure for hundred and sixty three thousand dollars. And to build serious, who had to pay for labor for number, right? To actually build a house couldn't build a house for that cheap.

The chief is that a home builder can build home is roughly two hundred thousand dollars, all in costs, right? And so if you can sit there and like, I can only build a house for two thousand dollars between I to sell IT for more than two hundred thousand dollars, well, I can compete with existing for closure and mentors. So home builders stopped building.

They went from building one point five a million a year down to without seven hundred and fifty thousand homes a year after that. And IT says like that until about twenty fifteen. And at that point, a lot of the inventory that came from for closures were absorbed and they started actually rebuilding again.

But they didn't rebuild at the same rate that they had prior. We're rebuilding right now, building probably new in mentorians. One point i'd say one point two million annually. And so then this massive thing happened, which is which is coated and all of the site and everyone from living in their studio apartment to saying, I need a backyard and an extra room for childcare and I need an office.

And there was this mass bike in demand after years of not building enough and been and so what happens when demand starts to Spike and there's not a lot of supply while home Prices took off, which you can kind of see right over here, is a little spiky part at the very end. And what's amazing is that it's actually just gotten incredibly harder, not just because home Prices are getting more expensive, but because of the impact that, that has in terms of how much you actually need to save to buy a home. So the left ten chart shows, uh, the yellow barriers, your average down payment and you can see that that's grown roughly two acts at the same time.

Meeting and come in the last twenty years has been kind of. So on an absolute dollar basis, you now need to save two x three months that you would have had to save back in two thousand. So on its sound, payment is an issue.

The second issue is that post global financial crisis, brightly. So the government tightened under any requirements. They said, you know what turns out when they cause in global world torii recession, we should maybe change our doing things.

And so they pulled back and said, we're going to make you have a higher, higher in order to be able to purchase a home, which is probably the right answer, but also pretty painful because people don't wake up one day. They're like, I no longer need to home, right? And if you take a look at this, the average photo for home buyers is well above what the average five is for the general population.

And anyone whose under forty figures is even lower, a pycke cures over time. And so what does this all come together and say is that unless you have the ability to save two x day mo, unless you are above average in terms of figo, when you're starting off your life in a starter home, you're going to struggle to actually be able to buy a home. Now this chart seems a little confusing, but I think it's it's really important to to uh, look at and understand.

I'll walk you through IT. So what this charge chose is mortgage rates, three percent, six percent, nine percent. We were at three percent quality year ago where I I think five and half percent right now is roughly ly where the thirty year fixed is and then nine percent, who knows, may be hopefully in the future.

And that says, what is your mortgage tax and insurance payments? What you have to include for a four hundred thousand dollar home, which is roughly li average home Price. And I know a little different in miami, but this is come across the us.

And then I said, how much income do you need in order to get that orange? And you can see there are income that you need goes from about ninety four thousand dollars of households income, up to about one hundred and sixty thousand of households income. And then I said how many households could qualify for that because there's state on on how much income household make across the U.

S. Three hundred and twenty six million households in the U. S. And you can see that historically, almost forty percent at thirty percent of households actually could afford a Morgan to where we were before. And that number today is god down to our twenty two percent and will go down to about less than fifteen percent of people who can actually get a mortgage on a home. This is in saying so over here, I kind of i'd like to just overly simplify things.

So I kind of put in here, which is a ten thousand dollar increase in home Prices means one million fewer families can own a home or a one percent increase in mortal rates meet five million families can actually own a home. So we're a little bit of a tough situation here. Um so when I started to be, the goal was to help solve wealth inequality by giving americans access assets.

This is the sole goal, the purpose, what I really believe in, which is that access to assets in compounding wealth in something that you cannot easily pull your money out of and you just leave IT there is the way that we can help people generate wealth for their families, for their children, for their next generation. So the way you give you works is very simple to a mortgage, accept its not a mortgage. Uh you come to our website, you apply, we give you a budget.

So we might say, hey, you're proved for five hundred thousand dollar home in my am. Go out shopping. You shop with your reliant the same way you would with a mortgage.

And when you're writing to buy a home, you just let us know what home you choose. We say, great. We put out in all cash quick loes offer for you so you can compete with every other investor offer that's out there.

We will take care for you because we know how to bit on these homes. Uh, we then take care of the inspections we cover, all closing costs, all fees, everything we had to closing. And you committed to one to two percent down, which is about a tenth of the usual downpayment.

Downy's are ten to twenty percent, we say one to two percent. And that initial equity in the home you own that that is yours. And then you move in, you make one monthly payment, part and part equity.

The same way of mortgage is principle and interest. And the equity piece builds up your percent ownership. We let you build up to ten percent over the course of three years.

At any point in time, you've need a mortgage, remove finance and take us out or you can catch out your equity and walk away, hopefully with tens of thousands of dollars saved up. So that is how we work. Um we Operate in sixteen metro.

Our biggest ones are georgia, texas and florida for is a big one up. The average income of our customers is about a fifty thousand to one hundred and fifty thousand dollar household income. Fifty percent of our customers are people of color and eighty percent of our transactions are female LED.

Um and so I think the most important thing is, are we successful in our mission and what we're trying to do. So fifty one percent of dev customers who have come to and over three years least have been able to buy back their home probably know there are twenty percent on top of IT aren't get ready for mortgages. And so we're just let them build more equity over time.

And about thirty percent of people turn over, which is completely find sometimes you have an extra Kitty to and you need a bigger home. And that's that's okay. We actually love that people can cash out their money and continue moving on.

Over here, we have what I think is one of the more powerful thing, which is the average rating or savings. First is the average saving that A D, B customer has in their home are almost twenty five times the savings that the average renter has. And this is because they're building up equity in their property over time.

And over here, just to show, we're growing quickly and we're doing IT profitably. Actually think this is super important is you consider and say that you're a building missionary company. You have to show scale, you have to show growth and you have to show that people there is adoption and you're actually having an impact.

And so this year, low will to play over a billion dollars of capital. We measure margin as the rent that we collect less home cause interest. It's like a true profit all in margin, where we're almost probably going to be at about twenty five percent all in profit margin.

And now I think we have yet. Thank you. Uh, I think that there is a video, but I don't know they're showing IT.

So can we can maybe go to Q A for running on sometime? Okay, cool. Thank you.

I know that free birds going to talk you about consumer credit, but let me just tee up something before um there's a tweet I just want to read IT to and maybe we can use this as a jumping off point. Blackstone calls homes almost as unaffordable as the two thousand and seven peak. They just said that today. Um his name is Josie who is I guess a senior part of them um but he believes a crashes unlikely due to a major difference, which is that most owners aren't using their homes like an A T M like they did back then yeah um can you explain um sort of the broader state of housing actually and sure uh, why some people feel like were actually OK right to the brink of a crisis again and some people do okay.

Yeah interesting. So the global financial crisis is very different than this because he was obviously a housing LED crisis where we had people over extend and they didn't have enough equity that was built up in their house to cushion a declining at home Prices. I'd say that this is a very different situation today.

And i'd say that because one, we don't have a lot of supply um and so fundamental, we are thinking about pricing, supply demand dynamics. Number one, we don't have a lot of supply. Now what you can probably argue is there is an equilibrium point, meaning interest rates are increasing, which is starting to stifle some demand.

Don't get me wrong actually seeing that a bit in the market. And then there is new homebuilding t that are coming online. And at some point, there's going to be enough inventory coming online that there's going to be engh supply and a decrease enough and demand that IT will impact home Prices.

Now I don't know that, that's going to be in the next six months. I actually think it's going to be more like twelve to eighteen months, and I don't think that IT means that there is gone to be a mass fall off like I was in a global financial crisis. But IT will slow down the Price of which which are growing out.

How much of this is just like miss cast housing policy that a lot of states and cities have? I'll give you you an example of where I live. I just got an an email from our mayor.

And basically what I said is like in the state of california now, they've basically you need to have a certain amount of housing density. They're trying to figure out how to do IT. They're not going to build high rises because those aren't allowed then know you allow these add used to get built that qualify and it's all gamers manship. Because as far as I can read that the nimbyism of not wanting to have high density homes, and that seems to be a very just american phenomenon.

Well, I actually think that it's a little bit that the markets just react solar like this isn't how is our equity markets? They don't just you can just buy and sell rapidly. It's like, oh, I want to build an entire community of homes five years.

I'm gonna to now plan in order to get the government licensing the regulation in the permits to actually build. And so you can see your problem, you're like, oh, home Prices are increasing and then it's like five years later, you can actually do something to actually impacted. And by then, the entire market has like completely change russian ated ukraine and COVID tcc over.

And there is a global pandemic. And so I think the bigger issue is that the housing market can't react as quick to keep up with public equity markets. And a lot of that is because the government highly regulates the building and columns, which takes a tremendous and of time. And especially right now, where builders are like, I think that most builders miss their q one numbers for how many houses they are actually going to build by almost sixty percent, which was mostly supply change. So even when they rush IT, a lot of other factors are impacting in.

And then what do you think about the because i've talked about this a little bit on the pot because it's something that's really, I think, poorly understood but important in my opinion, where Fanny and freddy changed the upper bounds of mortgage of mortgages where you you can they can be conforming now at like a million dollars were before they used to considered jumps. And anyways, the reason i'm asking this question is I feel like there's a lot of financialization and engineering here in the housing market that is poorly understood that in some ways tricks consumers to getting in a little bit over their ski tips and then in a moment like this where rates rise, their jobs a little bit more insecure. This is when all of the parade of terribles happen .

ah so we just added a wonderful woman her me is Kelly Johnson has actually our first independent choose the CEO finding night and I brought her on like fully understand as much of this as possible. Um so the last time the government changed the underside criteria, IT lets the global financial crisis. So if you asked them if they're like really excited to do another time and like no, no, we we learned our lesson once.

Um so i'd say that they're actually because they're been under conservative their ship. So most of ending maze Operations have been very dict by the government. They're not actually taking probably the level of risk that they should in this current market.

And what I mean by that is if home Prices go up by thirty percent, the what actually qualifies as a conventional mortgage needs to go up by thirty percent. But that is such a massive change for government to make because they're so shell shot, I think, from having made a changed before and had having such a negative ripple effect. So when I spoke to canberra, her her response was, no, no, no, no.

We're not here to start making these changes to make easier for consumers to get at home. That's your job. You disrupt us. You do that. I'm not here to take risk.

but you but they felt the government just felt like they still like I. They felt like the logic and natural change .

of how to happen raising the yes, I mean, of course, everyone is what's actually even crazy areas. I'm waiting for them to actually raised the death cracious because of what I showed you earlier, which is if your income is not increasing and moderate rates are going up and home values are going up, you now need to spend a larger percentage of your income on housing.

That's that's a lending change, right? But isn't that up to the individual banks?

They could change. They put overlays on top of Fanny's requirements. But Fanny man, because they actually put so when the global financial crisis happened, there were such very high fees and penalties, the one for banks that didn't have really stuck over least, that actually had a ton of default.

And so now banks are super nervous to learn to people and actually take risk that they actually follow fanning these guidelines very strictly and actually put over leads on top of bits. So they actually are more conservative a lot of times than what the underwater requirements are. And so in order for them to actually start to take risk, I think finding they would have to encourage and they'd have to do IT in .

such a way that they don't penalize. Yesterday we had bill girl and breakfast. Sor.

if saw that panel, didn't hear about .

IT o you did see IT or not? Okay, okay. We looked at all of assets being inflated yeah from used cars to nfs and everything in between. And we've now seen compression and we talked to us on the pot in every single sector yeah except housing. You and so were sitting here wondering what are the chances that housing collapses was talking to my palmer back stage, my university.

Interesting in me we went back stage and no no no don't run IT every know we just there we had a great conversation about ten different things is very interesting um so what are the chances and what we're talking about, the chances of a collapse said maybe thirty percent chance this real state collapse were watching your talk. Three percent chance me with the real state market collapsed. What are the chances in your mind being so close to IT that we will see housing collapse and this be a bubble.

but there there's no question that housing growth is going to slow down .

if you look go down. But I see the .

growth will know whether goes naked. Not I think is more a matter of what the economy does over the next twenty four months. Um but I actually think that what we will definitely ly see, which we have seen, i'd seen the last two weeks, we've seen a slowdown in the in the rate of for homes.

And now the global financial crisis was very different than than what we're seeing today. And if you anything of that, the stock market for the global financial crisis, three, nine o nine bottom of housing Prices, june of twenty twelve, three years later. why? Because the housing market moves so slowly compared to the equities market. And so IT is not surprising that housing is gonna. The last thing that's going to actually .

start to to impress in terms people live there for a while. They can for the mortal income drops and .

can for the mortgage staff market dropping. You like I should sell my home that can take thirty days. Then i've define someone, oh, that can take another thirty days oh then actually way to me move in. That's another thirty days and so it's three months before you can like, make a trade came I go to a Robin hod account like, yeah I know the market thinking less .

given over how can I shift the conversation for second you're founder of unique. Raise the big ground. Yeah a regulation.

Thank you a time to right.

So well, this is what I was just going ask you, can you talk to us about your mindset in this moment now in terms of your valuation, in terms of your cash, in terms of your burn, in terms of your employees, what's what's sort of front of mind? What are you doing? Same different .

yeah um i'd say so we raised um a two hundred million dollars around from tiger IT was prompted back about six months ago or maybe even nine months ago at this point um and I think that it's actually interesting they listen two guys on the pod um the best is and I think that you know for me as a founder, when I was going through that moment I was like, shit man is a black friday cell like I can raise a ton of cash i'm getting prompted left and right and so I actually think that founders like obviously I should have played the game that I played which was like why wouldn't raise a ton of capital and take less illusion?

There was nothing that was the right chest move at that point in time and now kind of to europe. And by the way, it's not founder fault that the market got overheated. You guys get off the .

time you did the .

rational thing anyway. You don't know you the .

right thing completely. And so but now.

but now now you have to just know, i'd say, look, D, V, we make, I don't know. We haven't really put out about hundreds of millions of dollars in revenue. I burn less than, I don't know, five to ten million of a months or less than five million a month.

We have three hundred employees. And do I think you have to be conservative? yes. Do I think you have to be along the entire way of building a company? yes.

Every second I thought my company can die at any moment, right? One hundred percent. And I run my company like that. My employees show there like, you're the most frugal person ever. Like, every single time we need .

to stand up .

some like, yeah.

thank you. Yes yeah.

Do you rely on your late stage investors in moments like this to like help you navigate? Or how do you do do rely on your early stage first?

Well, I don't think you rely on investors ever. yeah. No, I don't think that offensively. I think that some investors are great, but no one's building this company with you. I am building this company with my place, but i'm going out there with me. And so when times get tough, um IT is on you to make sure you can have a path to castle profitability if you can actually raise another round of capital um but you try to support your employees and work together kind of either through this, but I don't expect any of my investors to show up with the hell, mary. And um I think that it's not mean to run a really strong profitable business.

And so any changes from june to now or not really just kind of stay the course, get to the casual break even like meaning nothing to accelerate IT or .

so I think we plan out a bunch of different cases. So we always have the base case for decades. And then when I call the offer and which cash flow post IT and every week, my cfs, you and I get on call me to say, how's the market doing? How do we feel? Do we want to switch from base to our target case? Do we want to go down the offer path? nope. This week feels the same, the all in podcast and change our sentiment and we continue on on monday morning as plans we all in sentiment index.

I like this. It's great to to have you here. And I had had you on my podcast earlier and ah I had told you like god, I thought this was going to be the most boring podcast and I was one of the best the year you are.

I don't know that .

a problem. I was like a boring topic .

OK like a really boring top.

but a great guest. And you made IT really, really, but really education.

I will be on still fully until wow.

喂， 啊 i do have .

the one I do have that we're having pretending I do have an intro。 Oh, because I thought we, well, I thought we. Were anyone okay?

Very good, mom, everybody.

So I need my give, which I feel guys you give.

which is I already for IT. I'm in miami. Chilling with the best ties on this stage in a minefield of testes. J.

J, K, kindly invited me .

to share my passion. So here goes. And through all in fashion, I played the housing long game as the stock market will gitter.

But solving inequality is less flashy than almost buying twitter, the rental leader in the protected rena. I'd like to reintroduced myself. My name is adina.

他 快点 是。 Your winners.

right in, man.

We open sources to the fans and just got crazy with. 喂喂。

We should all just get a room and just have .

one big huge org because they .

always .

like like sexual attention and. Now we need to get mercy.