10 ms·

While there are some decent points in this post, it ignores another possibility for why Zillow Offers got shut down. The first explanation, when it was just be

While there are some decent points in this post, it ignores another possibility for why Zillow Offers got shut down. The first explanation, when it was just being paused, was that there was a shortage of labor and materials to do the renovating. Probably true, but not the real reason. It is entirely possible that the second explanation, that it was too hard to model accurately the price 6 months out, is also true but not the real reason. The real reason might be something the Zillow CEO doesn't want to say out loud. Like, we are near a top in house prices, and it looks like it might fall a lot, or for a long time, or both, before we get back to reasonable house prices that have a chance of going up again. Zillow does not want to say "real estate is about to bust, as an investment strategy", because they are still tied to the real estate market. But, flawed as their analysis might have been, they might have been able to see enough to know that no matter how good their algorithm could be made, they're not going to be able to buy low and sell high if the prices keep falling. Now, maybe Zillow is wrong again, and housing is not in for a rough ride in the very near future. But maybe they're not wrong, and shutting down Zillow Offers (rather than fixing it) will look like a quite prudent move in a year's time.

sokoloff 5y ago
Rising interest rates will be a drag on the market. It’s clear those will eventually come, but maybe not for five years. Pundits have called 23 (or more) of the last 2 housing market drops.
dsizzle 5y ago
The post seems more like an explanation for how Zillow they lost a bunch of money going long housing in a real estate boom than why Zillow is shutting down Zillow Offers.
anonAndOn 5y ago
The only time I've seen house flipping work at scale is 2010-2012 when those with huge piles of cash could buy foreclosures in a few heavily affected metros, do nothing for 3-6 months then put them back on the market for a tidy profit. After that brief window closed, you either had to become a landlord for a couple years or employ a crew of handymen on staff to fix all the surprises that come with being a homeowner. You're either a landlord or a builder if you want to actually make money outside of a recession.
- mertd 5y ago
  The idea was not house flipping at scale. They wanted to "market make" for housing. Housing market is illiquid. People would leave decent money on the table if they could just sell their houses within hours without having to deal with realtors, open houses, listing and closing process. Of course Zillow would have made some repairs and improvements but I don't believe that they thought this was their upside.
  - sokoloff 5y ago
    Exactly. People sell cars to CarMax for less than they could otherwise get because it's easy, fast, and certain. People buy cars from Carvana over the lowest price they could pay elsewhere because it's easy, fast, and certain. I think there's a lot of money to be earned by turning a slow, tense process into a fast, lower stress process.
    - toomuchtodo 5y ago
      What market making opportunities do you see that aren’t currently aggressively competed for?
      - sokoloff 5y ago
        I'm no expert, but as a homeowner and someone who as a result has to employ contractors to fix things, I'd love to see someone make home repairs easier, more certain, and lower aggravation. I think there are probably thousands of other industries/segments where an aggregate hundreds of millions or billions of dollars are spent annually and where people would spend 1 to 2.5% extra if friction were noticeably reduced. That used to be flights, hotels, and cabs that have been made easier in the last 2 decades.
        gruez 5y ago
        > I'm no expert, but as a homeowner and someone who as a result has to employ contractors to fix things, I'd love to see someone make home repairs easier, more certain, and lower aggravation. While it's definitely possible to improve the experience around that, I don't think it really qualifies as market making. Specifially, look at wikipedia's definition: >A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the bid–ask spread, or turn. You can't really hold "renovations to be done" as an "asset in inventory". It'll be something like uber, ie. a marketplace, not a market maker.
distantsounds 5y ago
I feel like labor and materials would be included somewhere in the forecasting model for pricing. Fairly hard to ignore either in, well, any business.
Imnimo 5y ago
But if we are "near the top", that doesn't really explain why Zillow Offers lost so much money. If we're still on the upslope, and the problem is just that Zillow expects a bust soon, wouldn't they have just been able to sell their houses for a profit? Like I don't think Zillow's model was to buy houses and sit on them for five years with the expectation that they continue to rise in value, so should an approaching downturn really cause them to lose hundreds of millions?
thehappypm 5y ago
I think the issue is around labor. When a contractor g team has the skills necessary to do a house renovation sufficient to flip, then Zillow is really just financing it. Financing is not really an issue for house renovations because homeowners provide the financing, or small-scale flippers self-finance. In any case a loan is really all that’s needed. I can’t imagine a contractor ever doing contracting-for-hire by a mega corp when there’s so much demand from homeowners flush with cash as-is, to the point where skilled contractors can basically name their price.
- dboreham 5y ago
  Yes. I had been thinking the same thing through the various zillow threads here recently: none of the construction contractors I know would ever work for a corporation. Unless they were starving, which they are not.
modriano 5y ago
Median housing prices have been consistently rising [0] since Zillow started their property buying program in 2018. In their most recent earnings report, Zillow announced $422M in Q3 losses from their home buying program and expects $240M to $265M in losses for homes they plan to buy in Q4 [1]. Rising sale prices coupled with big losses implies Zillow has been systematically paying above-market rates for homes, and there's a lot of evidence corroborating that hypothesis [2]. Maybe we're near a peak in home prices, but prices haven't started falling yet, and if Zillow was paying market rates, they wouldn't be losing money yet. [0] https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS [1] https://investors.zillowgroup.com/investors/news-and-events/news/news-details/2021/Zillow-Group-Reports-Third-Quarter-2021-Financial-Results--Shares-Plan-to-Wind-Down-Zillow-Offers-Operations/default.aspx https://investors.zillowgroup.com/investors/news-and-events/... [2] https://fortune.com/2021/11/03/zillow-house-flipping-overpaid-offers-unit-bank-of-ameria/ https://fortune.com/2021/11/03/zillow-house-flipping-overpai...
- ishjoh 5y ago
  Thanks for this well cited information. Here in the US we also have a strange habit of describing housing as national instead of local. Even during the housing bubble pop in 08/09, there were some markets that were hit extremely hard like Las Vegas, and others that were barely impacted like Dallas. I'm in a market that had insane growth over the last few years, and I am now seeing price cuts on lots of houses listed for sale.
  - rgbrgb 5y ago
    One thing to note is that seasonally there are always less listings and less home shoppers at the end of the year. So seeing more price cuts and less new listings is actually pretty normal in October, November, and December. Personally I'd bet on continued growth in January.
  - nradov 5y ago
    Price cuts don't necessarily mean anything. Better to look at the Case-Shiller index if you're in one of the covered metropolitan areas. https://realestatedecoded.com/case-shiller/ https://realestatedecoded.com/case-shiller/
nemo44x 5y ago
I doubt it. It would mean Zillow had some type of insider knowledge regarding interest rates or the macro economy. We aren’t in a 2008 scenario either regarding subprime. Perhaps they have an insight that no one else sees?
jrochkind1 5y ago
I don't think they lost $420 million on it because they knew what they were doing and were good at forecasting home prices and know things others don't about them. I mean, it's an interesting story you tell, but doesn't seem like the most obvious explanation to fit the data -- which would be, actually, they were bad at forecasting home prices, is why they lost $420 million trying to predict home prices.
- yxwvut 5y ago
  As someone who's been on the buyer side of the market for the past few months, I think it's even worse for their objective: they might be good at forecasting home prices on average conditional on their statistics, but bad at forecasting home prices of the subset that would be willing to sell to Zillow. Every zillow-owned home I've seen, bar none, has had either a bad micro-location (eg: next to a railroad in an otherwise good location), or a bad interior (eg: a smoker home). The same was true for Opendoor, who are in the same business. IE conditional on Sq Footage, location, acreage, etc. they might be incredibly accurate, but they're only able to buy the 50% below that average (and the gap is large because the missing/intangible variables matter a lot).
  - wil421 5y ago
    I agree that OpenDoor and Zillow bought really weird houses. My neighborhood is completely brick houses except for one that has some plastic looking siding and was in slight disrepair, guess which one Zillow bought and it sat for 6 months? There was another house OpenDoor bought down the street and at one point the roof was caving in, I dove by it for a decade wondering who lived there. A house flipper came along and repaired the cosmetics then sold it to OpenDoor for a premium. It sat for a year. There were also other weird houses like a fake barn and one’s, as you said, with bad micro-locations. Every single one within 5 miles of my house was a house with something weird.
    - travoc 5y ago
      The brilliant Zillow AI got fooled by old fashioned American DIY home improvement catastrophes.
Damogran6 5y ago
I'm looking at the current RedFin value of my house, the statement that "A lot of these properties are purchased by companies" and "Zillow is getting out of the flipping business" and thinking it was a problem of their own making. They've overheated the market to the point that they can't make any money, and a lot of people were having to spend more cash than necessary on a house that wasn't worth what they paid for it. I don't have to move, I expect a 30% drop in value...it probably won't be as bad as 2008.
jquery 5y ago
I believe we are approaching a top. A lot of otherwise-undesirable places to live have doubled and tripled in price recently (while homes in desirable cities haven't moved much at all), fueled by COVID-19 and remote work spiking demand temporarily. Basically, city-dwellers paying city prices for rural real estate. I don't think this is a sustainable state of affairs and I believe this has created a giant bubble in home prices outside of cities. Something has to give. Either the price of homes in cities doubles, or the price of rural/suburban homes falls back down to earth.
- poulsbohemian 5y ago
  Real estate agent checking in here: the thing about real estate is that it's local. So sure, there will be geographic locations or even segments of a market that are in a bubble and there will still be locations that are undervalued. Everything about my rural market would indicate continued sustainable growth for the foreseeable future, but I wouldn't dare prognosticate about another market without consulting local experts.
unclebucknasty 5y ago
If their Zestimate is any indication of their algorithm's proficiency, then that might point to the problem. The range of values they give for a home are frequently ~30% wide. Then they just pick a midpoint. So, it's "we think it's worth $700K, give or take $100K. Not exactly rocket data science. I previously just chalked that up to the whole estimate being a marketing thing anyway. And figured that if they did have some brilliant data science accurately predicting home prices, why would they give it away? Now that I see they were consistently overpaying for houses in a rising market--even with a presumed premium baked in for the convenience of an easy sale process--it's looking like their algorithms are indeed suspect.
natdempk 5y ago
I think you should also consider first and foremost the CEO's primary stated reason, which is introducing too much volatility for the company. He's said that Zillow aimed to be a market maker with +/- 200 basis points, but that Zillow Offers ended up swinging +/- 700 basis points. This volatility makes Zillow less like a reliable publicly traded company with regular growth and earnings, and more like a housing hedge fund where they need to hold onto a huge pool of capital to cover liquidity swings. > We have been unable to accurately forecast future home prices at different times in both directions by much more than we modeled as possible, with Zillow Offers unit economics on a quarterly basis swinging from plus 576 basis points in Q2 to an expected minus 500 to minus 700 basis points in Q4. > Put simply, our observed error rate has been far more volatile than we ever expected possible and makes us look far more like a leveraged housing trader than the market maker we set out to be. > We’ve got these new assumptions that we’d be naïve not to assume will happen again in the future, we pump them into the model and the model cranks out a business that has a high likelihood, at some point, of putting the whole company at risk, not just the business, but in the more normal case, just causes a ton of volatility in earnings, which is not a great look for a public company. That’s basically what it boils down to. He also acknowledged the operational issues, but in reality it seems like the volatility + scale of the capital needed is too much for Zillow to risk on top of their existing business and status as a public company. Stratechery had a good article on this which is where I pulled those quotes from, but it is behind a paywall.
sharadov 5y ago
Housing is a local game, even at the peak of the housing crisis some places did not fall by more than 10%.
nostrademons 5y ago
Eh, I think we'll see the nationwide housing market basically do what the Bay Area market did in 2018. Buyers dried up because prices outran incomes, the overbid vanished, and houses basically sold at list, leading to a ~10% decline from what they were selling for at the beginning of the year. Then it stagnated for a couple years until the COVID reopening, and has since shot up ~30-40%. The increase appears to be durable; unlike in many other regions, Bay Area techworker total comp has gone up like 50% since COVID, so houses are actually more affordable.
- throwawayapples 5y ago
  > Bay Area techworker total comp has gone up like 50% since COVID [, so houses are actually more affordable.] That's a pretty shocking claim, even if you're exaggerating to make a point; do you happen to know if anyone is tracking any data for this? The only data that I can find (non-tech worker) seems to indicate that things are still significantly worse in California and the Bay Area specifically, versus the country as a whole. This is dated Nov 2021, but it's not tech-focused, and, well, things don't look great: https://www.bls.gov/regions/west/summary/blssummary_sanfrancisco.pdf https://www.bls.gov/regions/west/summary/blssummary_sanfranc...
  - nostrademons 5y ago
    It's based on stock prices and levels.fyi (which itself has pretty shocking numbers, eg. new grad comp at any of the FANGs is pushing $200K/year). Stock prices of most of these companies have doubled in the last year; some recent IPOs (eg. Coinbase, Roblox) have gone up 10x. Someone who gets paid 50% in stock at a FANG, which is pretty typical from the levels.fyi data, has seen their comp go up 50%. Someone at one of the recent IPOs with a pre-IPO grant is getting paid in the multi-millions per year. Things are significantly worse if you are not in tech, but then you are not buying houses. Things are significantly worse if you are not in tech largely because you are not buying houses - everybody who is not in tech is largely getting squeezed out of homeownership here. This too is part of my prediction for the rest of the country.
    - 5y ago
asdff 5y ago
What markets was zillow operating in? If it was in a particularly constrained market, there is no top over say a decade of ownership. Zillow could hold and rent properties and in 10 years, even if we had 2008.2 tomorrow, they'd be worth more than they are today. Then again that sort of longterm investment thinking doesn't click with modern shareholder controlled companies.
emodendroket 5y ago
I keep hearing this line that Zillow must have Cassandra-like visions of a housing collapse and that's why they're bailing. The obvious question is, if they have such good foresight, what possessed them to overpay for houses so much in the first place?
mymythisisthis 5y ago
I feel that there are lots of contractors that can flip houses, with a better profit margin than Zillow. Contractors have the capital to outright purchase a home, no middle person as they do the upgrades, they also know the local market. Perhaps with large enough capital, the money is in building smaller condos, commercial units. As the initial capital layout is greater than what a small contractor can afford to do.

sokoloff 5y ago

Rising interest rates will be a drag on the market. It’s clear those will eventually come, but maybe not for five years. Pundits have called 23 (or more) of the last 2 housing market drops.

dsizzle 5y ago

The post seems more like an explanation for how Zillow they lost a bunch of money going long housing in a real estate boom than why Zillow is shutting down Zillow Offers.

anonAndOn 5y ago

The only time I've seen house flipping work at scale is 2010-2012 when those with huge piles of cash could buy foreclosures in a few heavily affected metros, do nothing for 3-6 months then put them back on the market for a tidy profit. After that brief window closed, you either had to become a landlord for a couple years or employ a crew of handymen on staff to fix all the surprises that come with being a homeowner. You're either a landlord or a builder if you want to actually make money outside of a recession.

mertd 5y ago
The idea was not house flipping at scale. They wanted to "market make" for housing. Housing market is illiquid. People would leave decent money on the table if they could just sell their houses within hours without having to deal with realtors, open houses, listing and closing process. Of course Zillow would have made some repairs and improvements but I don't believe that they thought this was their upside.
- sokoloff 5y ago
  Exactly. People sell cars to CarMax for less than they could otherwise get because it's easy, fast, and certain. People buy cars from Carvana over the lowest price they could pay elsewhere because it's easy, fast, and certain. I think there's a lot of money to be earned by turning a slow, tense process into a fast, lower stress process.
  - toomuchtodo 5y ago
    What market making opportunities do you see that aren’t currently aggressively competed for?
    - sokoloff 5y ago
      I'm no expert, but as a homeowner and someone who as a result has to employ contractors to fix things, I'd love to see someone make home repairs easier, more certain, and lower aggravation. I think there are probably thousands of other industries/segments where an aggregate hundreds of millions or billions of dollars are spent annually and where people would spend 1 to 2.5% extra if friction were noticeably reduced. That used to be flights, hotels, and cabs that have been made easier in the last 2 decades.
      - gruez 5y ago
        > I'm no expert, but as a homeowner and someone who as a result has to employ contractors to fix things, I'd love to see someone make home repairs easier, more certain, and lower aggravation. While it's definitely possible to improve the experience around that, I don't think it really qualifies as market making. Specifially, look at wikipedia's definition: >A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the bid–ask spread, or turn. You can't really hold "renovations to be done" as an "asset in inventory". It'll be something like uber, ie. a marketplace, not a market maker.

distantsounds 5y ago

I feel like labor and materials would be included somewhere in the forecasting model for pricing. Fairly hard to ignore either in, well, any business.

Imnimo 5y ago

But if we are "near the top", that doesn't really explain why Zillow Offers lost so much money. If we're still on the upslope, and the problem is just that Zillow expects a bust soon, wouldn't they have just been able to sell their houses for a profit? Like I don't think Zillow's model was to buy houses and sit on them for five years with the expectation that they continue to rise in value, so should an approaching downturn really cause them to lose hundreds of millions?

thehappypm 5y ago

I think the issue is around labor. When a contractor g team has the skills necessary to do a house renovation sufficient to flip, then Zillow is really just financing it. Financing is not really an issue for house renovations because homeowners provide the financing, or small-scale flippers self-finance. In any case a loan is really all that’s needed. I can’t imagine a contractor ever doing contracting-for-hire by a mega corp when there’s so much demand from homeowners flush with cash as-is, to the point where skilled contractors can basically name their price.

dboreham 5y ago
Yes. I had been thinking the same thing through the various zillow threads here recently: none of the construction contractors I know would ever work for a corporation. Unless they were starving, which they are not.

modriano 5y ago

Median housing prices have been consistently rising [0] since Zillow started their property buying program in 2018. In their most recent earnings report, Zillow announced $422M in Q3 losses from their home buying program and expects $240M to $265M in losses for homes they plan to buy in Q4 [1]. Rising sale prices coupled with big losses implies Zillow has been systematically paying above-market rates for homes, and there's a lot of evidence corroborating that hypothesis [2]. Maybe we're near a peak in home prices, but prices haven't started falling yet, and if Zillow was paying market rates, they wouldn't be losing money yet. [0] https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS [1] https://investors.zillowgroup.com/investors/news-and-events/news/news-details/2021/Zillow-Group-Reports-Third-Quarter-2021-Financial-Results--Shares-Plan-to-Wind-Down-Zillow-Offers-Operations/default.aspx https://investors.zillowgroup.com/investors/news-and-events/... [2] https://fortune.com/2021/11/03/zillow-house-flipping-overpaid-offers-unit-bank-of-ameria/ https://fortune.com/2021/11/03/zillow-house-flipping-overpai...

ishjoh 5y ago
Thanks for this well cited information. Here in the US we also have a strange habit of describing housing as national instead of local. Even during the housing bubble pop in 08/09, there were some markets that were hit extremely hard like Las Vegas, and others that were barely impacted like Dallas. I'm in a market that had insane growth over the last few years, and I am now seeing price cuts on lots of houses listed for sale.
- rgbrgb 5y ago
  One thing to note is that seasonally there are always less listings and less home shoppers at the end of the year. So seeing more price cuts and less new listings is actually pretty normal in October, November, and December. Personally I'd bet on continued growth in January.
- nradov 5y ago
  Price cuts don't necessarily mean anything. Better to look at the Case-Shiller index if you're in one of the covered metropolitan areas. https://realestatedecoded.com/case-shiller/ https://realestatedecoded.com/case-shiller/

nemo44x 5y ago

I doubt it. It would mean Zillow had some type of insider knowledge regarding interest rates or the macro economy. We aren’t in a 2008 scenario either regarding subprime. Perhaps they have an insight that no one else sees?

jrochkind1 5y ago

I don't think they lost $420 million on it because they knew what they were doing and were good at forecasting home prices and know things others don't about them. I mean, it's an interesting story you tell, but doesn't seem like the most obvious explanation to fit the data -- which would be, actually, they were bad at forecasting home prices, is why they lost $420 million trying to predict home prices.

yxwvut 5y ago
As someone who's been on the buyer side of the market for the past few months, I think it's even worse for their objective: they might be good at forecasting home prices on average conditional on their statistics, but bad at forecasting home prices of the subset that would be willing to sell to Zillow. Every zillow-owned home I've seen, bar none, has had either a bad micro-location (eg: next to a railroad in an otherwise good location), or a bad interior (eg: a smoker home). The same was true for Opendoor, who are in the same business. IE conditional on Sq Footage, location, acreage, etc. they might be incredibly accurate, but they're only able to buy the 50% below that average (and the gap is large because the missing/intangible variables matter a lot).
- wil421 5y ago
  I agree that OpenDoor and Zillow bought really weird houses. My neighborhood is completely brick houses except for one that has some plastic looking siding and was in slight disrepair, guess which one Zillow bought and it sat for 6 months? There was another house OpenDoor bought down the street and at one point the roof was caving in, I dove by it for a decade wondering who lived there. A house flipper came along and repaired the cosmetics then sold it to OpenDoor for a premium. It sat for a year. There were also other weird houses like a fake barn and one’s, as you said, with bad micro-locations. Every single one within 5 miles of my house was a house with something weird.
  - travoc 5y ago
    The brilliant Zillow AI got fooled by old fashioned American DIY home improvement catastrophes.

Damogran6 5y ago

I'm looking at the current RedFin value of my house, the statement that "A lot of these properties are purchased by companies" and "Zillow is getting out of the flipping business" and thinking it was a problem of their own making. They've overheated the market to the point that they can't make any money, and a lot of people were having to spend more cash than necessary on a house that wasn't worth what they paid for it. I don't have to move, I expect a 30% drop in value...it probably won't be as bad as 2008.

jquery 5y ago

I believe we are approaching a top. A lot of otherwise-undesirable places to live have doubled and tripled in price recently (while homes in desirable cities haven't moved much at all), fueled by COVID-19 and remote work spiking demand temporarily. Basically, city-dwellers paying city prices for rural real estate. I don't think this is a sustainable state of affairs and I believe this has created a giant bubble in home prices outside of cities. Something has to give. Either the price of homes in cities doubles, or the price of rural/suburban homes falls back down to earth.

poulsbohemian 5y ago
Real estate agent checking in here: the thing about real estate is that it's local. So sure, there will be geographic locations or even segments of a market that are in a bubble and there will still be locations that are undervalued. Everything about my rural market would indicate continued sustainable growth for the foreseeable future, but I wouldn't dare prognosticate about another market without consulting local experts.

unclebucknasty 5y ago

If their Zestimate is any indication of their algorithm's proficiency, then that might point to the problem. The range of values they give for a home are frequently ~30% wide. Then they just pick a midpoint. So, it's "we think it's worth $700K, give or take $100K. Not exactly rocket data science. I previously just chalked that up to the whole estimate being a marketing thing anyway. And figured that if they did have some brilliant data science accurately predicting home prices, why would they give it away? Now that I see they were consistently overpaying for houses in a rising market--even with a presumed premium baked in for the convenience of an easy sale process--it's looking like their algorithms are indeed suspect.

natdempk 5y ago

I think you should also consider first and foremost the CEO's primary stated reason, which is introducing too much volatility for the company. He's said that Zillow aimed to be a market maker with +/- 200 basis points, but that Zillow Offers ended up swinging +/- 700 basis points. This volatility makes Zillow less like a reliable publicly traded company with regular growth and earnings, and more like a housing hedge fund where they need to hold onto a huge pool of capital to cover liquidity swings. > We have been unable to accurately forecast future home prices at different times in both directions by much more than we modeled as possible, with Zillow Offers unit economics on a quarterly basis swinging from plus 576 basis points in Q2 to an expected minus 500 to minus 700 basis points in Q4. > Put simply, our observed error rate has been far more volatile than we ever expected possible and makes us look far more like a leveraged housing trader than the market maker we set out to be. > We’ve got these new assumptions that we’d be naïve not to assume will happen again in the future, we pump them into the model and the model cranks out a business that has a high likelihood, at some point, of putting the whole company at risk, not just the business, but in the more normal case, just causes a ton of volatility in earnings, which is not a great look for a public company. That’s basically what it boils down to. He also acknowledged the operational issues, but in reality it seems like the volatility + scale of the capital needed is too much for Zillow to risk on top of their existing business and status as a public company. Stratechery had a good article on this which is where I pulled those quotes from, but it is behind a paywall.

sharadov 5y ago

Housing is a local game, even at the peak of the housing crisis some places did not fall by more than 10%.

nostrademons 5y ago

Eh, I think we'll see the nationwide housing market basically do what the Bay Area market did in 2018. Buyers dried up because prices outran incomes, the overbid vanished, and houses basically sold at list, leading to a ~10% decline from what they were selling for at the beginning of the year. Then it stagnated for a couple years until the COVID reopening, and has since shot up ~30-40%. The increase appears to be durable; unlike in many other regions, Bay Area techworker total comp has gone up like 50% since COVID, so houses are actually more affordable.

throwawayapples 5y ago
> Bay Area techworker total comp has gone up like 50% since COVID [, so houses are actually more affordable.] That's a pretty shocking claim, even if you're exaggerating to make a point; do you happen to know if anyone is tracking any data for this? The only data that I can find (non-tech worker) seems to indicate that things are still significantly worse in California and the Bay Area specifically, versus the country as a whole. This is dated Nov 2021, but it's not tech-focused, and, well, things don't look great: https://www.bls.gov/regions/west/summary/blssummary_sanfrancisco.pdf https://www.bls.gov/regions/west/summary/blssummary_sanfranc...
- nostrademons 5y ago
  It's based on stock prices and levels.fyi (which itself has pretty shocking numbers, eg. new grad comp at any of the FANGs is pushing $200K/year). Stock prices of most of these companies have doubled in the last year; some recent IPOs (eg. Coinbase, Roblox) have gone up 10x. Someone who gets paid 50% in stock at a FANG, which is pretty typical from the levels.fyi data, has seen their comp go up 50%. Someone at one of the recent IPOs with a pre-IPO grant is getting paid in the multi-millions per year. Things are significantly worse if you are not in tech, but then you are not buying houses. Things are significantly worse if you are not in tech largely because you are not buying houses - everybody who is not in tech is largely getting squeezed out of homeownership here. This too is part of my prediction for the rest of the country.
  - 5y ago

asdff 5y ago

What markets was zillow operating in? If it was in a particularly constrained market, there is no top over say a decade of ownership. Zillow could hold and rent properties and in 10 years, even if we had 2008.2 tomorrow, they'd be worth more than they are today. Then again that sort of longterm investment thinking doesn't click with modern shareholder controlled companies.

emodendroket 5y ago

I keep hearing this line that Zillow must have Cassandra-like visions of a housing collapse and that's why they're bailing. The obvious question is, if they have such good foresight, what possessed them to overpay for houses so much in the first place?

mymythisisthis 5y ago

I feel that there are lots of contractors that can flip houses, with a better profit margin than Zillow. Contractors have the capital to outright purchase a home, no middle person as they do the upgrades, they also know the local market. Perhaps with large enough capital, the money is in building smaller condos, commercial units. As the initial capital layout is greater than what a small contractor can afford to do.