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Zillow wasn’t aiming to build a business making bets on the housing market. They wanted to become a market maker for housing, profiting off the spread and not c
by initplus 5y ago
Zillow wasn’t aiming to build a business making bets on the housing market. They wanted to become a market maker for housing, profiting off the spread and not caring about the underlying price movements. Being a (good) market maker is still profitable in a falling market.
The issue is that the housing market is just unsuitable for this strategy. Houses aren’t fungible, and they are very slow to trade. So Zillow ended up in a position where rather than clipping the ticket on spread, they were actually quite exposed to house price movements.
- rossdavidh 5y agoYou are absolutely correct. But, in a different situation where sellers were willing to sell at a price that was likely to still look like a good idea in a few months, they would not have realized that this wasn't a good idea (yet). It was, I think, inevitable that they would get out of this, because (as you point out) the housing market is not suitable for a market-maker business. But I don't think it was inevitable that they got out at the top; they could have held on and given in to the inevitable six months or a year after the slide had begun. I think it's to the CEO's credit that they got out sooner than that.