Our Firm
Resi Wrap - Short stacked
June 2021

Friends of ResiShares -

Greetings from the Atlanta airport, and welcome back to the new, monthly (ish…no promises) version of Resi Wrap. The team spent the week in sunny Tampa, Florida, checking out several assets in various states of renovation and meeting with investors and vendors.

It’s exciting to be on the ground in a city undergoing rapid transformation. Once-edgy Ybor City looks like a hipster, boutique version of Miami. Tourists and families brave the downtown humidity on Bird scooters. The ResiShares team had to settle for an 8:30 PM reservation at our second choice restaurant on a Wednesday night, booked 3 weeks ahead of time.

Short Stacked Homebuyers

One of the most persistent complaints by participants in the real estate market is the cost of brokerage. At 3% per side, BEFORE closing costs, buyers and sellers accustomed to free stock trading on Schwab and E Trade have been begging for faster, cheaper, and more transparent solutions, and Silicon Valley has poured countless millions into new ventures seeking to disrupt the model.

Despite the obvious customer pain and seemingly easy solution, no one has been especially successful in disrupting the cost structure of a real estate transaction. One of the reasons for this is that real estate transactions are very large for individual owner-occupants, and extremely infrequent. With the typical person doing only 1-5 such transactions in their entire lifetime, most are unwilling to go outside of traditional channels to consummate them.

Some of this reluctance is certainly emotionally driven, and exploited by savvy salespeople. That said, some is entirely rational. Similar to being the “short stack” at a poker table, decisions that maximize wealth over long run averages can be maladaptive when the number of transactions is too small for the average edge to overwhelm the potential costs of one trade gone bad.

With this in mind, it is entirely unsurprising that unprecedented volatility in housing prices is making potential market participants stay home (pun intended). Whether with a first home or a move-up, the potential risks associated with making a bad transaction in a market moving >10% per year that typically moves at less than half that speed can be terrifying.

This columnist points out that such volatility was the inevitable result of the financialization of US housing, which he traces back to the rise of liquid debt instruments in the early aughts. We wholeheartedly agree, and would further point out that as institutional SFR, equity sharing platforms, and housing derivatives become increasingly common over the next decade, individuals will increasingly need help insulating themselves from housing market risk.

Rest of Resi

  • A friend asked me today if a US housing market has ever failed to outpace CPI over a long time horizon. Yes.

Have a great weekend,

Michael Greene

Co-Founder and CEO

ResiShares |