Housing market ‘looks and feels’ like aspects of global financial crisis, venture capitalist says

Jordan Nof, Tusk Venture Partners managing partner and co-founder, joins Yahoo Finance to discuss web3 and whether or not there’s a bubble in the housing market as more homeowners access equity through HELOCs.

Video Transcript

– There’s been a lot of focus recently in the investing community on what is being termed web3. What is web3? Well, there’s a Bloomberg definition this morning that struck me as accurate, for what it’s worth. “The still hazy term,” it says, “for blockchain based decentralized systems and tech that are meant to replace the internet as we know it.” For what that’s worth.

But there is a lot of debate, now, about web3. And Jack Dorsey, of course, former CEO of Twitter and now just CEO of Square tweeting quite a lot about this last night, saying, “You don’t own web3.” He’s saying you, the collective audience. “The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label. Know what you’re getting into.”

Well, let’s talk a little bit more about this and what all of this means with Jordan Nof. He’s Tusk Venture Partners managing partner and co-founder. Jordan, you guys, like many in the venture capital community, are paying attention to web3. There seem to be a lot of opportunities and a lot of excitement around it.

Why is this debate, as it were, important, that Dorsey is sort of triggering here? Or is it important? Why does it matter who is sort of investing in, and for lack of a better word, controlling this new area?

JORDAN NOF: It’s really interesting because the genesis of the web3 movement is around having a decentralized approach to pretty much everything. So there is nobody who controls, nobody who owns the internet. It’s about taking our data and our privacy back. It’s about open source and decentralized not just financial institutions but decentralized movements across the web.

It is thought of a little bit more of as a major technological innovation than a specific investment opportunity per se. And I believe that’s probably where he’s alluding to, is that there are a lot of really exciting companies building on top of what many believe to be one of the most revolutionary changes that we’ll probably see this decade in the technology sector, specifically early stage.

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– Is he sort of barking up the wrong tree then, when he says, you know, yes, it’s decentralized, but if the majority of the investment opportunities are happening from one company, or a handful of companies, is that a problem?

JORDAN NOF: We’re still talking about an industry that’s very much in its infancy. This is a subsector of an emerging asset class, being this is kind of that next iteration on cryptocurrency in general. I think it’s a little bit too early to tell, a little bit too early to point fingers, for sure.

I think that what’s exciting for myself and other venture capitalists out there is that there’s a tremendous amount of excitement from software developers, engineers, and people building companies to build and leverage these applications. So the amount of talent that’s going in and applying themselves to building companies on top of it is what’s exciting.

– Jordan, you’re looking for a correction in the housing market next year. What triggers that? And how are you putting capital work because of it?

JORDAN NOF: So you know this is just something that I’ve been following, to quite a degree, about why is this different than it was in 2008. There’s plenty of reasons why. But what looks and feels very, very much like behaviors that took place in the global financial crisis, particularly, one metric that I was really paying attention to that there’s been some reporting on since, and that’s about the percentage of homeowners that have accessed equity in their homes via HELOC.

While I agree that the underwriting criteria for somebody to get a mortgage is much more stringent than it was in the past, there are other ways to access capital and really get yourself over levered on your primary residence or maybe more than just your primary residence, and that’s the using HELOC. You’re trading out of a fixed interest rate product into a variable rate product which is, once again, very similar to what we saw before, and basically using it as an ATM instead of a forced savings account.

– Jordan, I haven’t heard this take in many other places. You know, I think a lot of bulls on housing will point to just better lending practices among the banks. I mean, essentially you’re looking for a housing bubble to burst again?

JORDAN NOF: I’m not necessarily rooting on the sidelines for any specific outcome. I’m just looking at an observation that what happened with the global pandemic changed the way people thought that they were going to be working forever. And we started to see that play out and a reversion back to the mean. I do think that right now that uncertainty has come back in full stop with omicron, particularly in the northeast and New York where I’m based.

But with that being said, I think that we’re starting to see a lot of people that realize that they don’t love the commute coming back in the office, and that they do miss their colleagues, and working from home does have its benefits. But maybe not moving that far away from the urban areas that they lived before would have been a little bit less of a knee jerk reaction.

But more importantly, it’s basically people are buying houses for a reasonable price three years ago. And they’re getting knocks on their door with people telling them that their house is worth three times that, four times that amount. Instead of selling, what they’re doing is they’re going and they’re accessing home equity lines on that. So they’re lending against that. And we’ve seen a lot of them take those proceeds and put them into a highly risky assets.

– Jordan, what are the implications then for some of your investments? I mean, just glancing at your portfolio, the one that is sort of most obviously home related is Lemonade, I suppose, in terms of insurance and whatnot. But are there other implications from this thesis in terms of work from home versus office that apply to some of your portfolio companies?

JORDAN NOF: Yeah, absolutely. I mean, there’s one portfolio company Latch which is a multifamily and a commercial application. It’s a smart lock, and it’s a security platform. Then we’re seeing, there’s obvious implications there on new construction builds, on the multifamily side and single-family homes.

You know, we’re also seeing, I would say, just the way that people are viewing alternative investments relative to a primary residence is really the way that would play out. So you have people that are figuring out ways to gain more exposure. And this is not necessarily companies that are in our portfolio.

But companies that are out there raising a tremendous amount of money right now are primarily focused around ways to fractionalize ownership of potential summer homes or vacation homes in what, in my opinion and my firm’s opinion, are not the most overeager aspirations to carve up a timeshare and just label it as something differently and put a nice user interface on the website.

We’re looking, typically, to invest a little bit more in companies that have bigger goals such as Coinbase, such as Bird, companies that are looking to really change the way people behave or interact with the ecosystem.

– Jordan, thanks for being here. Jordan Nof is Tusk Venture Partners managing partner and co-founder. Appreciate it.