Let’s start with the bad, or is it the good, as many RE agents aren’t too fond of Zillow. As a RE photog for the past five years, I’ve heard opinions from agents, FSBOs (for sale by owners), and of course, my experience as a consumer and Zillow Select Photographer. We’ve all heard of the saying, “Keep your friends close, your enemies closer.” How does this relate to the recent Zillow downfall as it pertains to RE agents? I’ve always wondered, how many times an agent mentions, ‘Zillow’ during a listing appointment? We can already imagine the times agents must have to explain the ‘Zestimate’ inaccuracies.
It’s public knowledge that Zillow stocks plunged 25% to the lowest since July 2020, after the company exited the home-buying business. I’ve heard many agents mention that Zillow was able to make money selling homes at high prices relative to where it was purchased. Did you read between the lines? Many agents are furious with Zillow (and potentially sellers) as Zillow was able to persuade buyers to sell their homes to them at a lower value than agents normally would. As if RE agents always practice high moral and ethical standards. Hmmmm! I have my own opinion on that topic.
Zillow shares have lost two-thirds of their value since February as the company’s new home-buying business turned into a money-losing albatross.
Zillow said in its third-quarter earnings report on that it was exiting the Offers business after the company reported a pre-tax loss of $422 million in its homes segment.
CEO Rich Barton told analysts that Offers was ultimately “too risky, too volatile to our earnings and operations,” and had “too low of a return on equity opportunity.”
I’d say that the main reason Zillow decided to cut its losses, is simply because their inability to accurately predict housing prices. I’ve inserted below the most recent trend chart. Now, while its core internet marketplace continues to grow and produce cash, Zillow reported a 3rd-quarter net loss of over $328M, all tied to its instant buying, or iBuying, unit. Another point to note, and this comes at a time where workforce labor force has been shattered by Democrat politicians in Washington, using the pandemic as a power grab, and progressive lunatics at the helm in democratic-led states, Zillow cut 25% of its workforce.
Despite what I think were good intentions by the company, this is a common pump and dump, as many traders would call it. But did anyone see this coming, besides the insiders? CEO Rich Barton told analysts, “We determined that further scaling up Zillow Offers is too risky, too volatile to our earnings and operations, too low of a return on equity opportunity, and too narrow in its ability to serve our customers.”
Additionally, and what we saw locally in the greater Orlando market, the housing market dried up for a brief time early last year, and then skyrocketed as the closing of offices and slowdown in business activity in cities led people to move to locations they deemed more desirable. Prices ran up, setting records in many markets around the country.
The iBuying process allowed homeowners to sell on Zillow instantly for cash rather than going through a broker and dealing with an extended bidding and closing process. After purchasing a home, Zillow would invest in repairs and maintenance and, even when factoring in all those costs, try to sell at a profit.
So what caused this burst? You don’t need to be an economist to figure this one out. Simply, government over-reach is my answer. When the labor market tightened and supply chain bottlenecks sent costs for supplies soaring, Zillow’s already thin margins melted away.
In an interview with CNBC’s “Closing Bell,” Zillow CEO, Barton acknowledged there were many people who told him to never get into the home-buying business and to keep Zillow focused on the online marketplace. “I’m sure there are those out there wagging their fingers at me right now,” he said. “And justified.”
So what are my predictions for the housing market in 2022 and beyond? Answer: Home values will grow 10%+ and there will be more home sales than in any year since the housing crash. However, a few things will need to be corrected. First, lawmakers in Washington will need to replace the progressive left-wing nut jobs, which I predict will come in late 2022, with the Republicans taking over the Senate. And two, Democrat governors will be replaced during the so-called, ‘Red-Wave.’. Until these two things happen, we should continue to see increases in housing purchase costs, and rental rates will continue to rise.