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Zillow lost money because they weren't willing to lose money

stevenbuccini.com

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Re: Zillow lost money because they weren't willing to lose money

#131

Post by rossdavidh »

While no doubt Zillow made many of these mistakes, I think the reality is more sobering that the author of the article realizes. The more grim possibility, is that Zillow got out of the house buying business, not because they weren't good enough at it, but because they _were_ good enough at it to realize that it was at the top.

If buyers want more now for their house, than it can be sold for in a few months time (which is necessary for renovations and other prep for sale), then there is no ML (and no non-ML) method to make money. Either you overpay and lose money, or you don't overpay and you don't buy any houses.

In that situation, the only smart play, is to get out of the market. Zillow is, no doubt, not perfect. But they have a lot of knowledge of the housing market, and they thought it was time to get out entirely. I think the author of the article either isn't able, or doesn't want, to consider that Zillow might have been exactly correct in doing so.

Re: Zillow lost money because they weren't willing to lose money

#132

Post by halfmatthalfcat »

zionic wrote: post #126
SteveGerencser wrote: post #117

Earlier quoted context omitted.

Or a house full of cats. I had a 'cat lady' friend who struggled to sell her home because she had 13 cats. 13 'indoor' cats. Even at a great price the house would not sell. Enter the wonderful folks at Zillow that bought her house based purely on the numbers. Last I heard they still hadn't been able to move that house at any price.

Toxoplasmosis is a scary thing.

Not exactly. From what I read it’s almost completely benign in most humans.

Re: Zillow lost money because they weren't willing to lose money

#133

Post by SilasX »

SteveGerencser wrote: post #117
skohan wrote: post #28

> They thought they needed to build a machine learning model when they really needed to build an entirely new organization, one that possessed the technical and cultural mindset necessary to succeed in this space. I totally agree. It's not impossible to imagine their model working: why couldn't you serve as a market-maker for homes at a large scale, especially with the unique insights Zillow could have based on their…

Or a house full of cats. I had a 'cat lady' friend who struggled to sell her home because she had 13 cats. 13 'indoor' cats. Even at a great price the house would not sell. Enter the wonderful folks at Zillow that bought her house based purely on the numbers. Last I heard they still hadn't been able to move that house at any price.

Okay even accepting that Zillow made big unforced errors, that doesn't sound believable. Like, they don't make the offer conditional on someone looking at it in person for red flags?

Re: Zillow lost money because they weren't willing to lose money

#134

Post by h2odragon »

jason-phillips wrote: post #121
h2odragon wrote: post #109

Earlier quoted context omitted.

I'm in rural TN; not that different a place at all. I'm not speaking of family owned homes tho. I'm talking about the Abandoned, uninhabited homes that are now owned by some out of state thing per county records... which is a lot of them. LLC's and INCs whom I believe have the properties valued highly on some book somewhere and haven't done anything to maintain them. Our local Craigslists always have "Property inspec…

I actually used to work with people from East Tennessee for the past 2.5 years. They described how the Knoxville area was growing like crazy with folks from the coastal states moving there. I understand what you're saying. The ripple effect created by that dynamic would unjustifiably inflate local property values, reducing affordability for locals, creating synthetic demand by reducing supply as the land could otherw…

West TN; we've got that happening too. The neighbor's $750k McMansion has ludicrous "market value" implications for the hunting camp trailers beside it and the doublewide up the road.

and (ahem) East TN is more "western Arlington VA" IMO. I said rural. I'd have to walk a half mile to get a decent rifle shot at a neighbor. It's getting too crowded here.

Re: Zillow lost money because they weren't willing to lose money

#135

Post by dsizzle »

rossdavidh wrote: post #131

While no doubt Zillow made many of these mistakes, I think the reality is more sobering that the author of the article realizes. The more grim possibility, is that Zillow got out of the house buying business, not because they weren't good enough at it, but because they _were_ good enough at it to realize that it was at the top. If buyers want more now for their house, than it can be sold for in a few months time (whi…

But they lost money last quarter while the market was still rising. Seems there was some problem with their prediction process.

Re: Zillow lost money because they weren't willing to lose money

#136

Post by PaulHoule »

I can't agree with the article or many of the comments on it.

(A) Both Wall Street and Machine Learning Modelers struggle with tail risk. Hedge funds measure performance against

https://en.wikipedia.org/wiki/Sharpe_ratio

which assumes risk is (i) normally distributed and (ii) a source of reward. For most people, however, risk looks like Theranos or the Fukushima accident or the Challenger distaster.

It's unbelievable that a machine learning model trained to predict house prices based on experience would be accurate in the face of events like the COVID-19 pandemic or what will happen when the Fed raises interest rates. You can model risks like that, but to the extent that you're working from experience you are working from a database from the 1929 Crash, South Sea Bubble, etc.

(B) Mark Levine wrote a good article about how you'd exploit such a predictive model. If you consistently gave people low offers, a few people would accept them. You would get a high rate of return but could invest little capital.

To invest more capital you have to make more offers that get accepted, that is, give better prices. Your rate of return goes down and if there is shrinkage from errors, accidents, etc. you could get a negative return.

It's that "tendency towards a declining rate of profit" that Marx warned about.

(C) The analogy with stock market market makers doesn't sound good when you consider the differing timescales.

Market makers are isolated from some risk because of the length of their holdings. Yet, they make profits by exploiting the stochastics of a stationary market (e.g. if you don't like the price at time t1, you will usually get a better price at t2) but they lose money when markets move definitively in one direction or another.

That kind of trader heads for the bathroom when things go South and in the interest of being orderly markets impose sanctions on market makers who do the natural thing and press the "STOP & UNWIND ALL POSITIONS" button when it gets tough.

In the case of Zillow I see holding times that go on for weeks or months and all kinds of real world risk like planning to do certain renovations but having to delay the work because out of 20 things you need from Home Depot they only have 16 of them.

Re: Zillow lost money because they weren't willing to lose money

#137

Post by indymike »

sokoloff wrote: post #91
indymike wrote: post #83

Earlier quoted context omitted.

> Can you not imagine how useful it is to know user data e.g. what neighborhoods receive the most clicks, what type of homes generate the most favorites, how long people view one listing vs. another, … that is unrelated to public MLS data? Click data is much less valuable that the recent sale price data available in MLS. Using 90s style dwell time and click counts would likely yeild a lot of very noisy data. False po…

Surely Zillow was also using that data.

> Surely Zillow was also using that data.

One would hope.

Re: Zillow lost money because they weren't willing to lose money

#138

Post by seanmcdirmid »

jason-phillips wrote: post #101
h2odragon wrote: post #68

Earlier quoted context omitted.

My wife did some work for the Census last year. Our extremely rural neighborhood has lots of unused housing, some for a decade+. That work got her out to see some of the places not visible from the roads, and increased our awareness of the scale of the problem. At a guess, in our county, 20%+ of the housing is idle, owned by out-of-state companies, some of whom pay property taxes and some dont. The county isn't aucti…

> I think the housing market is so fucked no one really grasps the scale of the problem. I don't think I agree with this assessment. I live in a very rural area two hours northwest of Austin, literally in the middle of nowhere. I've studied the local economy and understand how things work here. I think the characteristics you've identified in the rural housing supply are not unusual and also not as serious in a pract…

How are the schools funded?

Re: Zillow lost money because they weren't willing to lose money

#139

Post by axg11 »

rossdavidh wrote: post #131

While no doubt Zillow made many of these mistakes, I think the reality is more sobering that the author of the article realizes. The more grim possibility, is that Zillow got out of the house buying business, not because they weren't good enough at it, but because they _were_ good enough at it to realize that it was at the top. If buyers want more now for their house, than it can be sold for in a few months time (whi…

While this sounds plausible, I think there are a couple of factors that work against this theory:

1) Why layoff your data science division if they are predicting with accuracy?

2a) If you have enough conviction to call the top of the market, why sell off so much housing at a huge loss? Zillow are the only participant in the residential real estate market losing money right now.

2b) If you see signals of a forthcoming housing crash, why not short the housing market?

The simplest explanation is that Zillow was poorly run.

Re: Zillow lost money because they weren't willing to lose money

#140

Post by treis »

abiro wrote: post #118

I think the title is highly misleading. The main point here is that Zillow simply had no idea what it takes to be a market maker and their pool was picked off by savvy traders. Good tweetstorms with technical explanations on how that happened: https://twitter.com/macrocephalopod/status/14558873523715973... https://twitter.com/0xdoug/status/1456032851477028870?s=21

I'll second that this article is just wrong. Zillow burned plenty of money in their Offers business. The problem is that all that spending revealed that they performed poorly in a questionable market segment.

Ultimately they were really bad as flippers. More often than not paying more than market price for the homes they bought.

I think the root problem is that this was a panic move. They saw Open Door's success and thought they had no choice but to try and replicate it. But its a questionable business move for Zillow and ultimately they couldn't make it work

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