The controversial author Christopher Booker suggested in a tome-length book, that all narratives belong to one of seven types. In his conception, all of history’s fiction is reducible to seven story typologies. In other words, there are no new stories in the world, only variations on already-worn themes.
The same can be said of business models. Despite the constant talk of innovation and disruption, new companies all hew to some variation of tried and tested business designs. While there are differences in degree and in execution, it is safe to say that “there is nothing new under the sun.”
Fintech is rife with these stories of mimicry. And in fintech, there is no better example than “Buy Now Pay Later” (BNPL) — an idea that has taken the investment world by storm but is in fact a model as old as mankind itself. Whatever the circumstances, BNPL is a huge trend and is spawning tens of billions of dollars of investment; it is also minting new unicorns.
Reality, however, is often (always?) different than advertising slogans. In addition, investors, despite their sophistication in certain aspects, are not immune to the herd mentality. Instead, they love to jump into trends just because they are, well, trends. Even in Tulip mania, mid-stage investors made money, as long as they weren’t left holding the bag (or the flower) at the end.
The power of BNPL
But cracks are appearing. In an excellent story, FinLedger’s Joe Burns quoted an executive at Credit Karma, suggesting that “debt is debt,” even if it’s instigated by BNPL. Ultimately, in the absence of infinite credit and de minimus payment schedules — neither of which exists — the purchase itself triggers a potential avalanche of default and cascading defaults cause financial meltdowns.
With the jury out on BNPL, it is worth exploring if there are ways to make the provision of liquidity sustainable, fair and overall positive for the ecosystem. Here, we can turn to the housing ecosystem as an exemplar both of what is possible but also what possibilities are being missed.
A quick romance with the numbers is called for. In the U.S., the total housing stock is worth a staggering $40 trillion. In fiscal 2021, Q2 alone, total house equity increased a whopping $2.9 trillion. In some states like California and Washington, 2021 saw the average equity per home increase over $100,000. Furthermore, Goldman Sachs predicts that in the last quarter of fiscal 2021, homes will rise another 16% in value.
If we consider the baseline value of $40 trillion, about 55% of that — or $22 trillion — is equity belonging to homeowners. The remaining 45% is mortgage debt. To put the $22 trillion in context, U.S. GDP is $21 trillion. While this number constitutes only about 17% of the total “net worth” of U.S. households, the latter number is skewed by the concentration of wealth at the top.
To understand that, it is worth remembering that the median household net worth in 2020 was $121,000. For the average U.S. household, their home equity is about 75% of their net-worth. A lot to digest indeed, but a very telling picture.
Homeownership in the U.S. is fairly widespread and systemic provisions have been made to ensure it is so. From mortgage debt availability to the favorability of homeownership in the tax code, the majority of U.S. families live in structures they at least partially own. About one-third of Americans fully own their homes.
Still, vast swaths of the U.S. population — even those who “own” their homes — are cash-poor. Atlantic Magazine did a sweeping survey of Americans in 2016 and found that 50% of them suggested that they would not be able to find an extra $400 in an emergency.
Combining all of these into one pithy statement is not easy, but it suffices to say that a vast swath of Americans are “house poor.”
Where’s the money?
Enter the brisk real estate market and we start to see both a conundrum and, in that conundrum, an opportunity. Recent statistics show that more than half (and up to three-quarters) of houses that sell were subject to bidding war price escalations. In some hot markets, the demand outstrips the supply of houses by 2 to 1. It’s a sellers’ paradise in many cities.
Still, despite this imbalance, real estate agents suggest that most of their listings could benefit from upgrades and refurbishments. Tomes of data indicate that upgrades to bathrooms, kitchens, cabinetry and other areas pay off handsomely at sale — not only with higher prices (often at several multiples of the invested money) but also with both increased sales velocity and demand in the house as measured by number of offers.
The conundrum here raises its head. Despite owning equity in their houses, American families are hard-pressed to find the money to hire contractors to make the changes that will result in these benefits. In this conundrum lies an opportunity and a dream — to help homeowners maximize their pay-out when selling houses while not undercutting agents and service professionals who together form a healthy ecosystem.
The question then remains: How does one quickly, easily, securely and fairly help homeowners to get the requisite changes done so that they can successfully sell their houses and realize the potential of their stored equity?
Re-enter BNPL, but with a twist. Can we do the “PL” without the typical “BN?” In other words, can we imagine “UNPL” as Upgrade Now Pay Later?
This way, instead of increasing consumerism and debt burdens, we help families in fact alleviate debt via increased realized equity in their homes. And that with no outlay of precious and scarce cash resources. I
Is UNPL the superhero that American homeowners need? I think so.
This article was first featured in the Dec/Jan HousingWire Magazine issue. To read the full issue, go here.
Romi Mahajan is an expert in the fintech marketing space. His previous roles include serving as CMO at Quantarium.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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