This week, I sat down again with Brad Safalow of PAA Research—one of the few people I know who still does the hard, often thankless work of actually shorting stocks.
When an Industry Changes Structurally, Yesterday’s Competitive Advantage can Become Tomorrow’s Liability Very Quickly
Brad spends his time looking for situations where the market’s assumptions don’t match the underlying economics. And right now, there are plenty of them.
We covered the battle reshaping residential real estate, why he remains bullish on Zillow, the growing problems facing for-profit education, the disruptive impact of AI, and several shorts he continues to believe have significant downside.
Different industries. Different companies.
Residential real estate is in the middle of a war.
For decades, the Multiple Listing Service created a relatively simple system: put a house on the market and broadly distribute the listing so buyers, sellers, brokers, and agents essentially see the same inventory.
Now that model is being challenged.
Compass is pushing aggressively into private listings, arguing that sellers deserve more control over how and when their homes are marketed.
Maybe.
But I think the more interesting question is: who benefits economically if listings become private?
The real battle isn’t simply about listings. It’s about who owns the relationship with the consumer.
Years ago, consumers called a brokerage to find a house.
Today, they open Zillow.
That shift fundamentally changed the economics of residential real estate. Brokerage firms may have the agents and the listings, but increasingly they don’t control the front door.
And whoever controls the front door usually has the advantage.
For years, real estate agents hated Zillow.
The complaint was understandable. Agents and brokers created the listings, Zillow aggregated them, captured the consumer, and built an enormously valuable business around that traffic.
Now something strange has happened.
Zillow has become one of the strongest defenders of broad, transparent access to listings.
Brad believes that puts the company in an increasingly powerful position.
Zillow isn’t simply a website where people browse houses anymore. It has built an ecosystem around the transaction—CRM software, showing technology, transaction tools, agent relationships, and enormous amounts of proprietary consumer data.
Competitors have spent enormous amounts trying to break its grip on the consumer.
So far, they haven’t.
The investment question is whether Zillow’s brand and infrastructure are more durable than the market currently believes.
Brad thinks they are.
And if the fight over private listings ultimately reinforces broad distribution rather than destroying it, Zillow may emerge stronger.
The housing market is terrible.
Existing home transactions are near historically depressed levels because millions of homeowners have mortgages at rates beginning with a three.
Why sell your house and give up a 3% mortgage to borrow at something closer to 6%?
You don’t.
So inventory stays constrained and transactions disappear.
But Brad made an important point: terrible markets don’t stay terrible forever.
If mortgage rates move below 6%—perhaps somewhere around 5.5% to 5.75%—you could begin unlocking meaningful transaction activity.
There is also no longer one simple “U.S. housing market.”
The Northeast and Midwest remain supply constrained, while parts of the Sunbelt and West built far more aggressively and are experiencing greater inventory and price pressure.
Economics 101 still works.
Build more houses and supply matters.
For investors, the opportunity may come from recognizing that housing doesn’t need to become great.
When activity is this depressed, it merely needs to become less bad.
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