The U.S. residential real estate sector is facing significant headwinds compared to the recent past. Increased mortgage interest rates and higher property values have diminished affordability for potential homebuyers. Finding affordable properties is challenging, especially those that don’t require substantial renovations. Simultaneously, the proportion of renter households is increasing while home sales are decreasing. Existing homeowners are staying put, and prospective buyers are struggling to find appealing options that aren’t overpriced.
These market changes spell trouble for real estate unicorn startups that secured funding during the previous boom cycle. Several publicly traded companies, such as Opendoor, Offerpad, and Better.com, have seen their share prices collapse. Startup investors have also reduced new real estate-related financings. Year-to-date, U.S. companies in real estate-related sectors have raised $3.5 billion in investment across various funding stages. This puts 2024 on pace for the lowest funding total in years.
We’ve observed significant pullbacks in startups operating in the mortgage sector. With higher interest rates, fewer homeowners are refinancing. Funding to companies with “mortgage” in their Crunchbase profile totaled less than $140 million in 2023 and 2024, representing an over 80% decrease compared to the two prior years. Former unicorns focused on mortgages and home closings have also suffered. Better.com, which automated the mortgage application process, implemented a 1-for-50 reverse stock split this summer after its shares plummeted. Doma, which aimed to streamline the home sale closing process, was acquired by title insurer Title Resources Group in September following a stock collapse.
Owning and holding vacant real estate has also become more expensive. This trend has not benefited Opendoor and Offerpad—iBuyer businesses tailored for a low-interest-rate environment that have seen their shares decline. Last week, Opendoor announced layoffs affecting 300 employees due to escalating losses. Private, venture-backed companies have also faced challenges. Veev, a Bay Area startup that raised nearly $600 million to revolutionize homebuilding, closed last year and sold its assets to homebuilder Lennar. Investment in the broader smart home theme has also weakened, as reported earlier this year.
In the commercial real estate market, the landscape includes the case of WeWork. The co-working company emerged from bankruptcy this summer, effectively eliminating billions in equity.
These developments show a decline in overall real estate-related venture investment. However, active fundraising persists in areas, including rental management, eco-friendly building materials, and tools to simplify construction. A future installment will explore who is receiving funding within these and other sectors.
