Mortgage rates are at an all-time low, demand for housing is high, and millions of Americans are rethinking where to live as businesses embrace remote working. What better time for Better.com to go public?

This five-year online mortgage startup has seen tremendous growth in recent years thanks to these trends, along with its astute ability to streamline the famously laborious and expensive home buying process.

Better.com reduced fees and commissions to zero, helping it make billions of dollars in mortgage origination, refinancing, and title and property insurance sales.

However, uncertainty remains over Better.com’s activities. Bigger mortgage players like Rocket Mortgage have stumbled despite impressive technology and intense interest in buying homes – and the founders of Better.com are coming with their own baggage, including a recent controversy when the CEO of Better.com laid off 9% of its workforce via Zoom.

The only question then is whether you should see Better.com as a hidden gem or rather as a repairman?

The Case for Better.com’s IPO

As with any new hot business, Better.com is experiencing impressive growth that investors hope they can build on.

In May 2021, Better.com, backed by Softbanked, revealed that it had entered into a deal to go public through a merger with Special Purpose Acquisition Company (SPAC) Aurora Acquisition. The companies aim to close the deal before the end of the year.

Better.com reported that its loan value climbed to over $ 24 billion in 2020, a 490% year-on-year increase, while its title insurance business grew 855% year-on-year in 2020, his home insurance was up 300%. and real estate transactions are up 471%.

This impressive growth, according to the company, was the product of a workforce that costs about half that of its competitors and takes more than twice as many loans per month as its competitors. Better.com also enjoys the backing of major financial institutions, such as SoftBank and Ally.

Clearly, Better.com’s plan to get more ordinary people to take out mortgages online is working well. Getting a mortgage is known to be difficult, with a seemingly endless range of costs.

Better.com’s website, on the other hand, is easy to use, its brokers charge no commissions or loan origination fees, and potential buyers can be pre-approved within minutes.

This type of home buying experience is sure to connect with young digital Native Americans between the ages of 22 and 40. They are the largest cohort of home buyers, accounting for 37% of the market, according to the National Association of Realtors.

As noted above, times couldn’t be better for mortgage companies. In October 2016, the interest rate on a 30-year fixed-rate mortgage was 3.47%, according to Freddie Mac. That figure had fallen to 2.74% at the start of 2021. It is now around 3.07%.

This has led to an avalanche of mortgage refinances, with existing homeowners looking to take advantage of lower rates. It has also sparked the interest of potential buyers looking to borrow less to buy homes. According to the Department of Housing and Urban Development, median home selling prices are currently around $ 410,000, up nearly $ 100,000 from five years ago.

The arguments against the IPO of Better.com

As anyone who experienced the housing market collapse from 2005 to 2007 can attest, real estate isn’t always so rosy.

While Better.com has managed to find its way into a low interest rate environment, what happens when mortgage prices return to historic norms? What impact will this have on his refi business, for example?

And even before that, the current housing market is in trouble. A shortage of construction workers combined with supply chain problems have delayed construction of new homes. This has resulted in an increase in demand for existing housing, but there are only a limited number for everyone. At some point, house prices can become too much for families to bear, no matter how low mortgage rates are, which can crush demand.

Then there is the curious case of Rocket Mortgage (RKT). This Detroit-based online mortgage company is the nation’s leading originator in terms of volume, and Rocket is well-known as a digital disruptor. After the company’s initial public offering (IPO) in 2020, insatiable demand for its shares never arose. RKT is down more than 13% in 2021 to date, compared to a 25% gain for the S&P 500.

Even still, analysts seem optimistic about Rocket’s long-term benefits.

“While Rocket’s revenues and earnings are likely to remain volatile, a symptom of the cyclical nature of the mortgage industry, the company’s strong competitive position and trends in consumer behavior will ensure long-term growth for it,” noted the Morningstar Equity Analyst Michael Miller.

Should you invest in Better.com?

The mortgage industry is incredibly competitive, which means Better.com faces many established pillars with their own powerful technologies to increase efficiency and reduce costs. Meanwhile, it lacks the lead generation capabilities of a Wells Fargo or a JPMorgan Chase, which can convince millions of existing customers to get a mortgage through them.

What Better.com has is a powerful growth story and a vision for an easier mortgage application process for the future. Its leaders also bring a controversy that could upset this narrative. In 2020, Forbes explained how Better chief executive Vishal Garg created an allegedly unhealthy work environment and took legal action against former business partners, some of whom alleged fraud. The more recent hubbub over Garg’s massive layoffs adds fuel to the narrative that Better.com is just not being governed effectively.

Given Rocket Mortgage’s dismal performance, uncertain housing market, and the inherently risky proposition to buy shares of any sole proprietorship, you should consider waiting for the dust to settle before diving into the actions of Better.com.