With Adena Hefets and Kimberly Johnson
Adena opened the panel with a rundown of the recent history of the housing market. Kimberly—a board member for Divvy, who is currently COO at T. Rowe Price and previously CEO at Fannie Mae—then joined for a conversation about ownership, building a business with inclusiveness at the center, and navigating the challenges coming up in 2023 as a fintech company.
As a result of rising interest rates, volume and demand for single-family homes has fallen 30% from the peak in 2020. However, prices are still historically high. Since 2019, they’ve risen about 15% a year to almost 50%, and they’ve only dipped about 6% from the peak. That’s because single-family housing in the U.S. is in severely short supply. We’d need to add one and a half million new household units each year until 2026 in order to keep up.
Eighty percent of Americans can’t afford a mortgage today. Historically, the payment-to-income ratio for home ownership was 20% to 25%. Today, it’s 40%. Adena expects this number to go down—for homes to become more affordable—starting in 2023, as the government’s efforts continue to slow down spending.
To Adena, home ownership means creating a better life and building wealth to take care of families through generations. Divvy’s mission is to open up access to that ownership.
Divvy creates homeowners by enabling rent-to-own in a new way. Customers go through a soft credit check and get a recommended budget. They then shop for homes to buy the way anyone would—but Divvy buys the house, takes care of all the logistics, and allows customers to build equity while paying rent. About half of their customers eventually buy back the house from Divvy; the other half save an average $15,000 through Divvy compared to renting.
Customers use Divvy for a number of reasons—like not having a big down payment saved, lower credit, or lack of the single salary required to qualify for a mortgage. Divvy’s customer base includes many gig employees, and more than half of their customers are underrepresented groups.
While Adena believes that raising interest rates is the right thing for the Fed to do, it makes doing business tougher. It’s affecting her customers and what they can buy—and it’s affecting how much Divvy can borrow to buy those houses and set up their programs. Interest expense is one of Divvy’s biggest costs; to control it, she’s had to set up new hedges. They’ve been successful, but they weren’t what she planned for when she founded the company.
Adena expects 2023 to be about “taking the hard medicine.” She says that we’ve put a lot of money into extreme growth over the last several years, it’s time to slow down. The interest rate hikes have affected fintech companies like hers first, but she believes more is coming.
Now is it’s time to slow down. It’s time to undo a lot of that. I think this is going to impact a tremendous number of industries. We may be seeing it early, earlier than a lot of other companies, but I think the wave will pass through.
Slowing down, she says, means refocusing. Her advice to other founders: “Look inward, build, focus on creating a profitable business and direct yourself slightly away from what had been a period of extreme growth.”
As a woman founder, building diversity in the workforce came naturally to Adena at first, but she believes it needs to be done intentionally. Companies, she says, need to widen their funnel and make sure that they’re bringing underrepresented people onto their board. They need to take the time to do the right kind of search—and they need to consider it an essential task,
They also need to set policies that correct for bias. At Divvy, they never negotiate compensation. Instead, they set compensation bands, make an initial offer, and allow promotions and raises early on.
Companies have an obligation to make sure that they are bringing in underrepresented minorities as well as women onto their board. You have to make it a concerted effort. You’ve got to do those detailed searches. Hold yourself accountable. That’s the most important thing.