“They [Opendoor] are taking enormous losses, and as shopping for brokers, we’re all testing their ache threshold. Once I signify a purchaser, it’s my fiduciary responsibility to signify them the very best I can,” Chris Davis, an actual property agent in Phoenix, tells Fortune. “So after I take a look at an Opendoor home for a consumer, as a purchaser’s agent, we’re coming in low and onerous. We’re getting counter affords and we’re having conversations. In the event that they weren’t determined, we wouldn’t be having conversations or getting counter affords, however they need this stuff off their books.”

We’ve seen this film earlier than. Again in 2008, leveraged newbie residence flippers throughout the nation had no selection however to promote—or foreclose—at huge losses as residence costs started to slip. Solely this time round, the correction is regional, and it’s a company titan that received caught holding the bag.

Not too way back, Opendoor had been using excessive. The San Francisco–based mostly firm entered the market with the aim of changing into a frontrunner for so-called iBuying. It really works like this: By its on-line platform, Opendoor makes speedy affords to consumers—who are sometimes promoting properties in want of some tender loving care—in change for a “service payment.” The corporate then makes the wanted repairs and flips the house again onto the marketplace for a fast buck.

Opendoor’s early success was sufficient for traders to push the corporate’s inventory value to over $34 per share in 2021 not lengthy after its preliminary public providing. The corporate’s strong progress additionally noticed it go from a startup in 2014 to No. 425 on the Fortune 500 in 2022. Even Zillow, which had launched its personal iBuyer enterprise in 2018, was racing to meet up with fast-growing Opendoor.

However fast-forward to this week, and issues aren’t wanting so scorching for the previous Wall Road darling. On Tuesday the corporate introduced it could lay off one other 560 staffers, or 22% of its remaining workforce. And on Wednesday, shares of Opendoor closed at simply $1.56.

How did issues go so terribly unsuitable for Opendoor?

To raised perceive, let’s rewind again to the autumn of 2021. On the time, the U.S. housing market was nonetheless going gangbusters from coast to coast. Nevertheless, in hindsight, the primary crack appeared when Opendoor’s competitor Zillow introduced in October 2021 that it could pause its personal flipping enterprise. Simply weeks later, Zillow introduced it was shutting down the hassle—generally known as Zillow Gives—and shedding 2,000 staff whereas scrambling to off-load its remaining properties.

It seems that Zillow had made a foul wager. Zillow’s much-lauded algorithm was struggling to foretell future value appreciation, which led to overpaying for properties. Zillow executives have been additionally uncertain as as to if the iBuyer flipping enterprise mannequin would flip right into a long-term revenue engine.

Jeremy Wacksman, Zillow’s COO, advised Fortune in Might 2022 that the corporate had no selection however to go huge on its iBuyer program: Flipping properties is an costly, sophisticated, low-margin enterprise that may be worthwhile solely on an enormous scale. Zillow wanted to “automate transactions so effectively that you may cowl the mounted price required to run that operation, which requires a number of expertise, a number of information, a number of automation, and, once more, a number of capital,” says Wacksman. 

In the long run, that scale—which noticed residence flipping account for 87% of Zillow’s income within the first quarter of 2022—and the potential for even greater losses was sufficient for Zillow executives to exit the enterprise.

“It’s part of enterprise. You’re going to take some huge swings. Some work out, some don’t,” Zillow president Susan Daimler advised Fortune final 12 months.

As Zillow exited its residence flipping program, Opendoor traders did not appear too frightened: On Nov. 2, 2021, the identical day Zillow introduced it could completely exit iBuying, shares of Opendoor closed at $21.12. In hindsight, possibly Opendoor traders ought to have been on greater alert.

Talking in entrance of Congress later in November 2021, Fed Chair Jerome Powell mentioned “it’s most likely time to retire” the phrase “transitory.” Powell, it appeared, was sending a hawkish message that inflation was right here to remain and the Fed would jack up rates of interest. If the Fed truly did so, it could imply the three% mortgage charges that have been serving to to energy the Pandemic Housing Increase would go poof.

Nonetheless, iBuyers like Opendoor and RedfinNow saved shopping for up properties in late 2021, and homebuyers saved bidding up residence costs. The music saved enjoying, nevertheless it was about to cease.

The U.S. housing market was an absolute frenzy by way of the primary few months of 2022. The truth is, U.S. residence costs as measured by the Case-Shiller Nationwide Dwelling Worth Index in March 2022 notched a document year-over-year soar of 20.8%.

However the nationwide housing increase’s finish had already been set into movement. In preparation for the Fed’s first 25 foundation level rate of interest hike in March 2022, monetary markets have been already pushing up mortgage charges. The common 30-year mounted mortgage price, which ended 2021 at 3.11%, was as much as 3.89% by the tip of February 2022. By the tip of March 2022 it was as much as 4.67%.

Mortgages charges saved inching up by way of the primary half of 2022, and Opendoor saved shopping for properties. At first these spiked charges merely slowed down the housing market. Nevertheless, proper round June 2022, when mortgage charges topped 6%, Western housing markets like Phoenix and Boise slipped into residence value corrections. Quickly afterward, the nationwide housing market slipped into its first correction because the housing crash bottomed out in 2012.

Nationally talking, the house value correction—which noticed U.S. residence costs fall 3% on a seasonally adjusted foundation between June 2022 and January 2023—has been considerably delicate. Nevertheless, the housing correction has been notably sharp in frothy housing markets out West, with many seeing near double-digit residence value declines within the second half of 2022. These hard-hit Western markets, together with locations like Phoenix (down 7.5% from its peak) and Reno (down 7.8% from its peak), are additionally the very locations the place iBuyers like Redfin and Opendoor (see chart above) had vital publicity.

In these fast-correcting Western housing markets, iBuyers like Opendoor and Redfin had no selection however to start out slashing residence costs final summer season.

“When the shiitake mushrooms hit the fan, you [investors] need to get out first. The best way to try this is to determine the place the bottom sale is, and be 2% beneath that. And if it doesn’t promote within the first weekend, transfer it down [again],” Redfin CEO Glenn Kelman advised Fortune final fall. “We discover instantly when fewer individuals are on our web site and fewer are signing up for excursions…We’re sitting on $350 million value of properties on the market that we purchased with our personal cash, or—worse—purchased with borrowed cash. And what we at all times advised traders is that we’d shield our steadiness sheet by performing rapidly. We don’t have hope as a technique. We instantly began marking down issues.”

In November, Redfin joined Zillow in chucking up the sponge on its residence flipping enterprise. The transfer noticed it lower 13% of its workers.

Not too lengthy after Redfin introduced its iBuyer exit, Opendoor had its personal shake-up. In December, Opendoor cofounder Eric Wu introduced he would step down as CEO. He was changed by Carrie Wheeler, the corporate’s chief monetary officer.

A fast take a look at Opendoor’s financials exhibits what Wheeler is up towards. Whereas Opendoor’s revenues grew 94% to $15.6 billion in 2022, so did its losses, going from $662 million in 2021 to a $1.4 billion loss in 2022. Much more obvious, its adjusted internet loss climbed 394% from a $116 million loss in 2021 to a $574 million loss in 2022.

In complete, Opendoor bought 39,183 properties in 2022, up from 21,725 properties in 2021 and 9,913 properties in 2020. In fact, ramping up simply because the nationwide housing market was peaking proved expensive.

“Fed motion to lift goal charges by 300 bps [basis points] in lower than 5 months [in 2022] catalyzed the quickest shift in housing situations in 4 many years. We continually observe macroeconomic and housing situations and alter our methods accordingly, however we didn’t predict the pace of decline in residence value appreciation and transaction volumes,” wrote Opendoor in its shareholder letter printed in February. “On the resale facet, we diminished checklist costs [in 2022] to remain in step with the market. In hindsight, we didn’t do that rapidly or aggressively sufficient.”

The excellent news for Opendoor? In keeping with a report printed by Goldman Sachs in February, Opendoor has bought 66% of its second-quarter 2022 cohort—in any other case generally known as the properties Opendoor purchased on the peak of the market final 12 months. By the tip of the primary quarter, Opendoor expects 85% of that Q2 2022 residence cohort to be gone.

The dangerous information for Opendoor? In that very same report, Goldman Sachs reiterated its promote ranking on Opendoor (ticker: OPEN) and diminished its 12-month share value goal to simply $1.

Jay McCanless, a senior vp of fairness analysis at Wedbush, is a bit much less bearish on Opendoor. He thinks the U.S. housing market is now “by way of the worst of it” and the sharp home value declines are over. The dearth of stock and robust demographics, McCanless tells Fortune, places a ground on how far residence costs can fall. Already, residence value indexes produced by companies like CoreLogic, Zillow, and Black Knight are exhibiting that nationwide home costs are rising once more on a month-over-month foundation. Even some markets out West, the place the housing correction was probably the most intense final fall, are beginning to present fewer value cuts.

The improved housing market in 2023, coupled with Opendoor’s “sturdy money place,” is why McCanless has a $3 share value goal on Opendoor. That mentioned, that determine pales compared to the $34 share value Opendoor had again at its peak in 2021.

Opendoor declined Fortune’s interview request. Nevertheless, an Opendoor spokesperson did ship Fortune the next assertion: “Within the wake of the once-in-a-40-year transition within the housing market final 12 months, we have begun to see early indicators of market normalization. For Opendoor, we saved our promise to prospects in contract with us by way of final 12 months’s volatility and are making good progress on reselling these properties whereas additionally buying new properties at engaging margins for the enterprise. When the market might not be dependable for sellers, Opendoor might be their sure supply.”

Wish to keep up to date on the housing market? Observe me on Twitter at @NewsLambert.