Market Update November 3, 2021

EVEN ZILLOW IS STRUGGLING IN THIS MARKET

Zillow has just announced that will layoff 25% of its workforce, shuttering its homebuying (flipping) services.

Zillow’s reputation for hemorrhaging money has been an intention play for them to capture market share. Several months ago Zillow stated it would pause it’s home buying program due to a backlog of projects caused by labor shortage (“waddaya mean you’re booked out for 3 months?!?”), escalating cost of materials, and supply chain delays (e.g. appliances, flooring, paint, etc).

This has lead to exacerbated holding costs (taxes, insurance, utilities) whittling down Zillow’s profit margin. We have finally reached the straw that broke the camel’s back. Our current housing market’s “unpredictability,” runs contrary to many of Zillow optimistic forecasts. Undoubtedly Zillow hopes for a self-fulling prophecy, trying to direct the market towards its own ends by steering consumers on its platform. As housing prices continue to taper, Zillow is seeing a lot more red than it originally anticipated.

If you’ve never heard of an iBuyer program, it’s a group of corporations, such as Redfin and Opendoor (funded by a seemingly limitless amount of venture capital) who seek to buy homes off-market from sellers who just want to sell their home quickly. Think of the “We buy homes 4 cash” except with fancier logos and sophisticated algorithms.

These programs are largely a loss-leader for these corporations. This is why they charge a staggering commission of 8-9% in an attempt to offset the loss. And just like Costco’s rotisserie chicken, these corporations are aiming for the, “well, while you’re here, don’t you need to pick up a mortgage? A HELOC perhaps? What about brokerage services? Thinking about renting? That’s over in this isle!” Getting customers into the door, then having them purchase other products, all under the same roof, is how this business model makes a profit.

While everyone wants their real estate transaction to be stress and hassle-free, the reality is that buying/selling a house is more stressful than bankruptcy or divorce. Therefore, it’s no surprise that billions of dollars are spent to solving this issue in the hopes of capitalizing (monopolizing) on it.

However, in the pursuit of the ” click 1-button to buy a house,” these corporations are learning that a real estate transaction is not just an ordinary internet transaction (like buying a burrito blanket on Amazon), but a complex dynamic and negotiation between two distinct groups of people, each with their unique emotions and personalities.

Perhaps the solution is as simple as just finding a better real estate agent instead of dumping billions of dollars down the drain.