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Median housing prices have been consistently rising [0] since Zillow started their property buying program in 2018. In their most recent earnings report, Zillow

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/
x3sphere 5y ago
yeah where I live in AZ, Zillow overpaid massively for every home it purchased that I've seen. Like 15-20% over usual price. And they've priced the homes they are selling quite a bit below what they bought them for already. Many aren't moving too. I'm not too sure why they just don't hold onto the homes though. Even with the carrying costs, holding on would be profitable if market is to rise another 10%+ as some are predicting. The only reasonable explanation to me is that they are expecting a significant drop in 2022-2023, but maybe I'm wrong.
- thehappypm 5y ago
  Carrying costs aren’t $0 though and it would be horrible PR to sit on empty houses when people are struggling to find affordable housing.
- nostrademons 5y ago
  They can't do it without getting creamed by the market (which is exactly what's happening now). They're a public company, which means they need to report earnings quarterly. All of those carrying costs come straight out of earnings. Worse, they're a public tech company, which are usually valued on having consistently increasing revenues and high margins (Zillow had something like 80% margins before Zillow Offers). If they have a year of massive losses investors are going to lose confidence in their business model, tank the stock, and oust the CEO. I suspect that Blackrock or whoever buys the portfolio is going to make massive amounts of money off of it, though. Financial firms are setup to hold assets for long periods of time and even out gains and losses, and their investors expect this.
  - jrochkind1 5y ago
    Especially because whoever buys their portfolio is going to get Zillow selling it at a loss, they're going to pay less than zillow did!
  - croutonwagon 5y ago
    There’s also the reality that unoccupied homes rot from the inside out. It turns a traditionally appreciative asset quickly into a depreciating asset that, when looking at Zillow, also creates a bit of a market trend since comps are also common in pricing a house. Banks had this same issue with the foreclosure issues following 2008. And it was largely why some just….didn’t forclose or in other cases struck deals to allow the previous owner to stay on temp basis.
rossdavidh 5y ago
Absolutely Zillow overpaid, at least a lot of the time. However, part of that is because they apparently had a hard time getting people to accept their offer often enough, and so tweaked the algorithm to pay higher. This suggests that, if you pay the amount you can actually make money on in six months, you don't get very many people accepting your offer, because people don't know as much as Zillow knows about what's about to happen in the housing market. Or, maybe, Zillow is just no good at predicting housing prices. But it's at least worth considering that, if they were actually reasonably good at it, they might have come to the conclusion that the only way to make money right now is to convince house sellers that their home is about to be worth less than it seems to be now, which isn't likely to be something they wanted to try to do. Maybe they're just incompetent, but they might be competent and have nonetheless come to the same conclusion that Zillow Offers needed to be shut down. p.s. thanks for the great links, but I would like to point out that the St Louis Fed link goes up to July 1, which leaves open the possibility that Zillow saw something in the last 1-2 months different from what came before.
- travoc 5y ago
  > maybe Zillow is just no good at predicting housing prices. You can spot check the historical “Zestimate” for a few homes over a few years and notice the drastic spikes and troughs where the inaccurate Zillow price was instantly corrected after a real market event. Overall their modeling is wrong, but still useful.
  - A-Aron 5y ago
    Zestimate is configured strangely. They build it on stale data like 85% of the time. I noticed that when a house is listed, they adjust the Zestimate to be equal to the list price, then revise it again after the sale is posted. It's a revisionist history, and so the question would be what would you validate it against? It's riddled with bias.
- jrochkind1 5y ago
  > if you pay the amount you can actually make money on in six months, you don't get very many people accepting your offer, because people don't know as much as Zillow knows about what's about to happen in the housing market. I mean... wouldn't that be because people do know as much as Zillow knows about what's going to happen in the housing market, so they're happy to wait the six months to make more money too, instead of letting zillow make a profit by doing nothing more than sitting on it for six months?
tqi 5y ago
How does the accounting work for those losses? ie is $422M = (Total $ from homes sold in Q3) - (Total cost of buying/renovating those homes), or is it (Total $ from homes sold in Q3) - (Total $ from homes purchased in Q3)?
ByteJockey 5y ago
> ...expects $240M to $265M in losses for homes they plan to buy in Q4 This part of the sentence blows my mind. We plan to do this thing. It's going to lose a bunch of money. And they're still going to do the thing...
- HNdev1995 5y ago
  Perhaps those contracts already signed
  - ByteJockey 5y ago
    I would, personally, call something I've already signed for "something that I bought", not "something I'm planning on buying". But maybe that's not standard in the business sphere.

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/

x3sphere 5y ago

yeah where I live in AZ, Zillow overpaid massively for every home it purchased that I've seen. Like 15-20% over usual price. And they've priced the homes they are selling quite a bit below what they bought them for already. Many aren't moving too. I'm not too sure why they just don't hold onto the homes though. Even with the carrying costs, holding on would be profitable if market is to rise another 10%+ as some are predicting. The only reasonable explanation to me is that they are expecting a significant drop in 2022-2023, but maybe I'm wrong.

thehappypm 5y ago
Carrying costs aren’t $0 though and it would be horrible PR to sit on empty houses when people are struggling to find affordable housing.
nostrademons 5y ago
They can't do it without getting creamed by the market (which is exactly what's happening now). They're a public company, which means they need to report earnings quarterly. All of those carrying costs come straight out of earnings. Worse, they're a public tech company, which are usually valued on having consistently increasing revenues and high margins (Zillow had something like 80% margins before Zillow Offers). If they have a year of massive losses investors are going to lose confidence in their business model, tank the stock, and oust the CEO. I suspect that Blackrock or whoever buys the portfolio is going to make massive amounts of money off of it, though. Financial firms are setup to hold assets for long periods of time and even out gains and losses, and their investors expect this.
- jrochkind1 5y ago
  Especially because whoever buys their portfolio is going to get Zillow selling it at a loss, they're going to pay less than zillow did!
- croutonwagon 5y ago
  There’s also the reality that unoccupied homes rot from the inside out. It turns a traditionally appreciative asset quickly into a depreciating asset that, when looking at Zillow, also creates a bit of a market trend since comps are also common in pricing a house. Banks had this same issue with the foreclosure issues following 2008. And it was largely why some just….didn’t forclose or in other cases struck deals to allow the previous owner to stay on temp basis.

rossdavidh 5y ago

Absolutely Zillow overpaid, at least a lot of the time. However, part of that is because they apparently had a hard time getting people to accept their offer often enough, and so tweaked the algorithm to pay higher. This suggests that, if you pay the amount you can actually make money on in six months, you don't get very many people accepting your offer, because people don't know as much as Zillow knows about what's about to happen in the housing market. Or, maybe, Zillow is just no good at predicting housing prices. But it's at least worth considering that, if they were actually reasonably good at it, they might have come to the conclusion that the only way to make money right now is to convince house sellers that their home is about to be worth less than it seems to be now, which isn't likely to be something they wanted to try to do. Maybe they're just incompetent, but they might be competent and have nonetheless come to the same conclusion that Zillow Offers needed to be shut down. p.s. thanks for the great links, but I would like to point out that the St Louis Fed link goes up to July 1, which leaves open the possibility that Zillow saw something in the last 1-2 months different from what came before.

travoc 5y ago
> maybe Zillow is just no good at predicting housing prices. You can spot check the historical “Zestimate” for a few homes over a few years and notice the drastic spikes and troughs where the inaccurate Zillow price was instantly corrected after a real market event. Overall their modeling is wrong, but still useful.
- A-Aron 5y ago
  Zestimate is configured strangely. They build it on stale data like 85% of the time. I noticed that when a house is listed, they adjust the Zestimate to be equal to the list price, then revise it again after the sale is posted. It's a revisionist history, and so the question would be what would you validate it against? It's riddled with bias.
jrochkind1 5y ago
> if you pay the amount you can actually make money on in six months, you don't get very many people accepting your offer, because people don't know as much as Zillow knows about what's about to happen in the housing market. I mean... wouldn't that be because people do know as much as Zillow knows about what's going to happen in the housing market, so they're happy to wait the six months to make more money too, instead of letting zillow make a profit by doing nothing more than sitting on it for six months?

tqi 5y ago

How does the accounting work for those losses? ie is $422M = (Total $ from homes sold in Q3) - (Total cost of buying/renovating those homes), or is it (Total $ from homes sold in Q3) - (Total $ from homes purchased in Q3)?

ByteJockey 5y ago

> ...expects $240M to $265M in losses for homes they plan to buy in Q4 This part of the sentence blows my mind. We plan to do this thing. It's going to lose a bunch of money. And they're still going to do the thing...

HNdev1995 5y ago
Perhaps those contracts already signed
- ByteJockey 5y ago
  I would, personally, call something I've already signed for "something that I bought", not "something I'm planning on buying". But maybe that's not standard in the business sphere.