Market Impact of the Closure of Zillow Offers

 Many people are discussing the Zillow’s business decision to discontinue Zillow Offers. This was a essentially a house flipping program. My question is what - if any - will be the market impact of the closure.

There are several other players in this segment - all with slightly different models - such as publicly traded companies OpenDoor, Redfin Now and OfferPad. Redfin will report Q3 results tomorrow (November 4th), and both OpenDoor and OfferPad will report Q3 results on November 10th. All three companies will be asked about Zillow’s decision. It will be interesting to hear if they are pulling back on volumes.

Redfin was much more cautious than Zillow when they entered the market, and here are some comments from Redfin CEO Glenn Kelman in 2019.

North Bluff Capital @bluff_capital

$ZG $RDFN Zillow in Q22019 talking about ibuying as the company's "moon landing" and the 1T TAM while Redfin's Glenn Kelman in Q219 with the very different/realistic take: "anyone in this business should be scared. And if they aren't scared, you should be scared."

November 2nd 2021

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Impact on the Housing Market

First, it appears Zillow has around 7,000 homes that they will sell in the coming months, many at a loss. However, there will probably be around 1.6 million existing homes sold in Q4 Not Seasonally Adjusted (NSA). So 7,000 is a very small percentage, and with record low inventories (for September), this will not have an impact.

However we might see an impact on the demand side. Especially if the other iBuyers are scaling back their purchases (we will know more in the next week). This will have an impact at the margin, especially since it appears Zillow was buying, uh, some lemons, and boosting the price of less desirable homes.

One of the interesting comments during the conference call yesterday was that only 10% of potential Zillow Offers buyers accepted the Zillow offer. This suggests that many sellers were savvy, and many only accepted iBuyer offers above market. Economist Taylor Mar noted this (here is a discussion on the famous Akerlof paper: The Market for Lemons).

Taylor Marr @tayloramarr

@calculatedrisk Classic market for lemons problem

November 2nd 2021

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It is possible this will have an impact on buyer psychology, and make some buyers more cautious, but that is impossible to measure.

But the bottom line is inventories are very low, mortgage rates are still historically low, and demographics are currently favorable for home buying.

If the housing market slows - for whatever reason - I think the slowdown will show up in active existing home inventory. This is why I track local market inventory so closely every month. Some markets have seen inventories increase, but overall active inventory was at a record low for September.

We should get some local October inventory numbers soon.

https://calculatedrisk.substack.com/p/the-market-impact-of-the-closure