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Zillow Stops Home Flipping, Loses Money Despite Prices Rising By 20%

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18 comments on Zillow Stops Home Flipping, Loses Money Despite Prices Rising By 20%

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Inability to Forecast Prices

Here’s the hoot of the day: Zillow Quits Home-Flipping Business, Cites Inability to Forecast Prices

Real-estate firm Zillow Group ZG is exiting from the home-flipping business, saying Tuesday that its algorithmic model to buy and sell homes rapidly doesn’t work as planned.

Chief Executive Rich Barton on Tuesday said Zillow had failed to accurately predict the pace of home-price appreciation, marking an end to a venture the company once said could generate $20 billion a year.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Mr. Barton said.

Zillow, which will release earnings later on Tuesday, said it would report that its home-flipping business, Zillow Offers, lost $381 million last quarter, as measured by earnings before interest, taxes, depreciation and amortization. That resulted in a combined Ebitda loss of $169 million across all of Zillow. The company said it also plans to cut 25% of its workforce.

Case Shiller Home Price Index

What a Hoot!

Home prices are up about 20% year-over year. Every major market is surging. And Zillow manages to lose money flipping homes.

Question of the Day

What does this say about Zillow home price estimates? Just how bad are they? 

Also consider the Fed’s inflation expectations model. Lacy Hunt and I discussed that in MishTalk TV #4 With Lacy Hunt. 

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TechLover1
TechLover1
2 years ago
Most house flippers buy houses from distressed sellers. They play the game of buying at a discount. There are some dark patterns in psychology played out. I don’t believe a large corp can do any of that.
The way Zillow was implementing it, they had a huge adverse selection issue. Only those who know that the offer was mispriced in homeowners favor, will be inclined to accept.
I don’t believe this is a game that large corporations should play. They should be in the business of buy and hold (rent) which most of the institutional players are now doing.
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Mish
Mish
2 years ago

Youngkin
Maintains 2 point Lead

Nate Cohn

I assume this is just boring at this point, but the race still
isn’t called so I will just note that Youngkin continues to be on track for
that 2 pt win that he’s been on track for since the 7:20 pm.

link to twitter.com

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dbannist
dbannist
2 years ago
Reply to  Mish
I find the NJ results so far to be more interesting than the VA ones.
NJ will still likely go Democrat but by a tiny margin.

That’s far more surprising than a Republican win in VA, in terms of what will happen if things do not change for the Democrats at midterms.

STill, a year is a long time and one should never underestimate the ability of some leading Republican to mess things up by saying something stupid.

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Six000mileyear
Six000mileyear
2 years ago
It’s not just the inability to predict price appreciation, but also accurately determine under priced property presently on the market.
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Mish
Mish
2 years ago
Condolences to VA on becoming radically racist again according to the media…by electing by electing a black female lieutenant governor and a Cuban-American attorney general, rejecting racial essentialism in schools, and replacing a Dem governor who wore an actual KKK outfit.
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Mish
Mish
2 years ago
What About Turnout?

link to twitter.com

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Mish
Mish
2 years ago
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Mish
Mish
2 years ago
Update at over 1300 precincts: Youngkin continues to be on track, running ahead of what he needs–even if only modestly–by just about any measure.
He’s a very big favorite at this point; needle might be getting into that 90% range if it was on the internet
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Eddie_T
Eddie_T
2 years ago
Reply to  Mish
Biden certainly didn’t bring out the Black vote for McCauliffe.
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Eddie_T
Eddie_T
2 years ago
At 9pm Eastern, it looks like Youngkin is very likely to win, from where I’m sitting. I wonder if they’ll call it soon.
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Casual_Observer2020
Casual_Observer2020
2 years ago
Zillow is a joke. The actual prices are closer to county property values for tax purposes.
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Eddie_T
Eddie_T
2 years ago
Reply to  Casual_Observer2020
I had four residential  appraisals done here within the last 45 days, and all four were within 10%+/- of the Zillow estimates. So my experience doesn’t line up with that view.
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anoop
anoop
2 years ago
is it even possible to lose money?
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Eddie_T
Eddie_T
2 years ago
I wouldn’t write them off. The previous four earnings reports were all surprises to the upside. This is a temporary problem, I think.
My main objection to owning Zillow is no different than my objection to owning any other hot NASDAQ issue. Z has been selling at a P/E of over 100. But one negative quarter is not likely to put them out of business. In fact it sounds like they’re taking the steps they need to take to stay in business.
With the stock off sharply today, tomorrow will be the best chance anybody’s had to buy Z at something like fair value…..in years. If it gets creamed again tomorrow, I might buy it for a trade.
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Eddie_T
Eddie_T
2 years ago
Reply to  Eddie_T
13.5% short. 6 days to cover. 9% of stock held by insiders. Only 169M shares in the float. 
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StukiMoi
StukiMoi
2 years ago
“What does this say about Zillow home price estimates?”
Exactly the same as what someone loosing at craps says about his dice rolling estimates. And ditto what someone winning at craps, says about his.
In both cases, the only systemic edge is conferred by the game itself: He who is closest to the house, or the Fed, wins. He who is further away, loses. Just as is the case wrt Warren Buffet and any random homeless guy.
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jfpersona1
jfpersona1
2 years ago
I don’t know how the Zillow algorithm/item works, but I have two things to say about it:
1) HAHAhahahahaha!
2) I can only assume that the people most likely to take Zillow up on their offer are those who know more about their properties than Zillow does.  And hence would be taking advantage of an offer because it was inordinately to their advantage.
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1-shot
1-shot
2 years ago
I’ve been flipping homes for years and stopped in 2019 because of low margins. I guess AI nd all the Wall Street algos aren’t all they’re cracked up to be. 
Still. Barton and his cronies and VC backers made off like bandits and left the dumb IPO buyers holding the bag
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