Endpoint CEO: 'We are at or near the [existing home sales] bottom of the current cycle'

While the lock-in effect persists, it has somewhat eased in recent months as the initial shock of mortgage rates fades into the rearview mirror. Some homeowners, desiring to sell and purchase something else, are acknowledging the reality that their life circumstances have changed and that sub-4% mortgage rates are unlikely to return anytime soon.

According to Realtor.com, in February 2024 there were 339,370 new listings, up +11% from February 2023, when there were 304,868 new listings. However, it's important to note that this figure is still -17% below the levels seen in February 2019, when there were 409,934 new listings. (Full month March figures drop on Thursday).

This slight increase in new listings and pendings raises the question: Have existing home sales, which were at their lowest levels since 1995 in 2023, bottomed out this cycle, and are they on the rise from here?

To get an idea of what executives in the space are thinking, ResiClub did a Q&A last week with Endpoint CEO Scott Martino (see below).

Endpoint, which is backed by First American, is a digital title and settlement company built from the ground up to “make home closing easy for all.”

Q: Since spring 2022, the housing sector has experienced a significant decline in transactions on the existing side. This trend emerged as mortgage rates surged from 3% to over 7%. While homeowners themselves have fared well, with national house prices maintaining stability, many lenders and agents have felt the pinch. Where do you foresee existing home sales heading from here, and is the worst behind us? 

Limited inventory, elevated mortgage rates, and still rising home prices in many markets throughout the country will continue to put [downward] pressure on [existing] home sales for the foreseeable future. That said, I believe that we are at or near the [existing home sales] bottom of the current cycle. There is significant pent-up demand in the housing market as younger millennials approach prime homebuying age and Gen Z begins to enter the market. 

It appears that people are coming to terms with the fact that the days of 3% are behind us, and for those who have been pushing off their plans to move, many will decide they can’t hold off any longer. We saw increased demand from homebuyers at the start of the year as rates hovered around 6.6%, and if, as expected, they begin to moderate later this spring, we would expect to see more people enter the market. We’re already starting to see inventory increase in many markets as sellers realize they can’t continue to hold off on making a move. They also have the advantage of the equity they’ve amassed in recent years, which will help offset some of the higher costs associated with buying a new home in today’s market. 

Q: When considering home prices, mortgage rates, and incomes, this housing market stands out as one of the least affordable on record. Do you expect housing affordability to improve heading forward, or are we stuck? What's the best pathway to improved affordability? 

The U.S. housing market has systematic challenges and housing affordability will continue to be a challenge for the foreseeable future. Baby Boomers are aging in place, which has limited the number of existing homes coming onto the market. After a decade of underbuilding, builders have ramped up their supply of new construction, which has helped to bring new housing stock into the market. However, demand continues to outweigh the number of available homes. Moody’s recently estimated that despite the homes that will be built in 2024, America’s housing deficit will remain in the 1.5-2 million range. Other estimates are much higher. Also, as Baby Boomers eventually move, this will free up existing homes for sale, but the only way to solve the affordability issue is through building more housing, especially more affordable homes. 

Q: What is the story behind Endpoint and what is your company’s mission? Technology in the title and escrow space isn’t new. What differentiates Endpoint?

Technology has changed so much of our lives, and over the past decade, there has been a lot of focus on simplifying the process of buying and selling homes. As a leader in the title and settlement industry for decades, First American believed that the settlement process, which historically has been manual and paper-intensive, was ripe for innovation. The result of a collaboration between First American and BCG Digital Ventures, Endpoint launched in 2018 with a mission to make home closing easy for all.  

What sets Endpoint apart is our approach. We’ve built our platform from the ground up by marrying people, process and technology to offer a better, more efficient and cost-effective closing experience at scale. This uniquely positions us to handle the needs of SFR investors that are typically closing multiple transactions at any one time across different geographic regions. In addition to having access to the resources of First American, they benefit from Endpoint’s national reach, automation and API, which increase accuracy, speed and security. We also offer a single point of contact and the ability to customize workflows based on each customer’s specific needs. 

We also can draw from First American’s expansive resources and institutional knowledge, which not only allows us to develop faster than most startups, but provides our clients with far-ranging services and expertise that they can’t get from other digital settlement providers. 

Q: Endpoint is backed by First American, a real estate title/closing giant that ranks on the Fortune 500. How does that relationship work? 

Would it be cliche to say we have the best of both worlds? We have the backing of and access to the resources of one of the largest and most stable title companies in the industry as well as the autonomy to operate and think like a startup. This gives us the flexibility to balance growth with making the investments that lead to long-term innovation. This has allowed us to assemble an unparalleled team of technology and settlement professionals who are singularly focused on leveraging AI, image recognition and other cutting edge technologies with the hands-on experience of people who have spent years in the title industry to develop faster and more accurate processes.  

Q: What are your insights on the single-family rental (SFR) space? Where do you anticipate it heading in the next five years, and the next ten years? 

Although individuals have owned single-family rental homes for decades, the institutional SFR category is relatively new and highly fragmented with about ~100 institutions owning just less than 5% of single-family rentals nationwide. We expect institutional ownership to grow as the demand for single-family rentals increases due to changing demographics. While homeownership remains the American Dream, research shows that millennials and Gen Z like the flexibility that comes with renting, especially as many more people work remotely.

Over the next five to 10 years, we expect to see more investment by SFR investors in build-to-rent communities. SFRs can attract certain tenant profiles, such as families or retirees, by customizing communities with similar amenities you typically find in large apartment complexes.

The merging of proptech and SFR will make it more efficient and cost-effective for institutional investors to manage their portfolios. Companies like Roofstock, Offerpad, and Up & Up have created products that enable innovations in the SFR industry. First American, through its venture firm Parker89, has invested in many of these companies. At Endpoint, our centralized operating structure was designed to meet the needs of SFR investors looking for a single settlement provider. 

Short-term, the wildcards for SFR investors are interest rates versus rental price growth and the regulatory environment. In 2023, we saw acquisition volume among the top 100 SFR investors drop off by over 80% relative to where they were in 2021. For SFR investors to invest, we need to see home prices moderate, interest rates come down, or rent prices increase. Institutional investors approach SFR investments with a higher return threshold than your typical mom-and-pop SFR investor. Rent control laws, zoning and housing policies also could constrain growth in the space.

Q: There has been notable consolidation within the industry. Do you anticipate further consolidation, and if so, which sub sectors might be most affected?

Although we are beginning to see the housing industry emerge from a couple of tough years, it will still be a year or two until we begin to see sustained growth. This will continue to pressure companies that are struggling or even great businesses that can’t afford to operate in the post zero interest-rate policy environment. Consolidation will likely continue across the industry.