Redfin's mortgage business recorded negative gross margins in the fourth quarter, even as the company was able to maintain the 17% cross-sell rate with its real estate division from the prior three month period.
Redfin greatly expanded its mortgage capabilities in April following the
In the fourth quarter, Redfin had a $12.3 million loss on mortgage alone. While the company reported a $61.9 million net loss, mortgages performed better than real estate services (a loss of $27.6 million); properties (a loss of $26.3 million); and rentals (a loss of $22 million).
Mortgage gross margins were a loss of 8.9%, compared with positive margins of 9.7% in the third quarter.
"Margin compression was driven by price and competition across the mortgage industry as lenders grappled with
For the third quarter, the mortgage segment recorded a net loss of $5.2 million. One year ago, and prior to acquiring Bay Equity, Redfin's mortgage business lost $8 million.
The year-over-year change in originations and segment revenues is indicative of Bay Equity's impact.
Production grew to $1.04 billion in the fourth quarter, from $1.56 billion in the third quarter and just $242 million in the fourth quarter of 2021. Full year production — with only three quarters of owning Bay Equity — was $4.3 billion, compared with $988 million during 2021.
In the fourth quarter, the mortgage segment produced $28.4 million in revenue, versus just under $4 million for the 2021 period.
Meanwhile, the cross-sell rate from real estate agents to mortgage picked up to 21% in February, Glenn Kelman, president and CEO, said.
"I think part of it is that it just takes time to build relationships between loan officers and real estate agents," said Kelman. "By getting the lenders and the agents in one room and just making sure everybody understands that when we work together, we can deliver more value to the customer and a better customer experience was probably what drove this uptick in attach rate."
Going forward, Kelman expressed concern about
"Regardless of what happens to rates in 2023 and beyond, inventory will likely stay low," Kelman said. "What's most remarkable about this housing downturn is that the number of homes for sale hasn't meaningfully increased from the calamitous lows of the pandemic."
While the number of homes for sale were up 40% year-over-year in January, it was still half of what was available between 2016 and 2019. Prices have only fallen 3% since last May, after the 40% increase during the past two years.
"The
Unlike Redfin, Remax Holdings does not operate a mortgage company. It instead sells
While initially, the franchisees were its own real estate operators, Motto is now available to units of
In the fourth quarter, Remax Holdings lost $2.6 million compared with net income of $3.1 million one year prior. For the full year, it earned $9.5 million, compared with a loss of $24.6 million in 2021.
"Our revenue decreased by less than 10% despite the nearly 35% year-over-year decline in U.S. existing home sales, highlighting the advantages and strength of our diversified franchise model," Steve Joyce, CEO, said in a press release. "However, continuing challenging macroeconomic conditions including higher mortgage rates and lower U.S. existing home sales reduced our broker fee revenue, pressured our U.S. agent count, slowed Motto franchise sales, and muted our top- and bottom-line performance."
But the company did on a net basis add 20 new Motto units, bringing the total at year-end 2022 to 231 from 211 on Sept. 30, 2021. It had 185 open offices as of Dec. 31, 2021.
