Zillow lost money because they weren't willing to lose money • Hacker News Board

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

#271

Post by rossdavidh » Sat, Nov 27, 2021, 9:27 PM UTC

initplus wrote: post #269

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…

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…

You 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.

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

#272

Post by rossdavidh » Sat, Nov 27, 2021, 9:30 PM UTC

asdff wrote: post #261

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…

It's land, there is no top. It's a finite resource. Buy any property in the U.S. and hold for 15 years and I would be shocked if you didn't make out even if you had 2008 in between.

Perhaps, although I suppose there were Japanese property buyers who thought so also. But a CEO can't run at a loss for 15, 10, or probably even 5 years before getting booted, either by the board or a hostile takeover.

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

#273

Post by rossdavidh » Sat, Nov 27, 2021, 9:32 PM UTC

dsizzle wrote: post #254

rossdavidh wrote: post #202

Earlier quoted context omitted.

Rumor is that they had to put their thumb on the scales (i.e. tweak the model) to get enough sellers to sell to them. In other words, if paying what their model actually thought was the right price, not many people sold to them. Instead of saying "our division's whole business model won't work, you should fire us", they tried to cut the margin too close, resulting in losses which got the CEO's attention to the proble…

Do you have a reference for this? Is part of the rumor that not everyone in the organization knew this was happening?

No, the rumor was just that they put their thumb on the scale.

https://ryxcommar.com/2021/11/06/zillow-prophet-time-series-...

"Speaking of middle managers, word on the street is that Zillow Offers put their thumb on the scale of the algorithm to make it engage in more aggressive trades. Manually adjusting an algorithm isn’t necessarily a bad thing, but you need to do it for the right reasons. And clearly that didn’t end up working out..."

That not everyone in the organization knew that, is just me speculating.

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

#274

Post by initplus » Sat, Nov 27, 2021, 9:35 PM UTC

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…

Even if Zillow had an algorithm that was 100% accurate at predicting current house prices, the housing market is just incompatible with market making. A market maker isn’t exposed to changes in the price, they clip the ticket on providing liquidity regardless of price direction. Zillow may have been able to successfully speculate on house prices with an accurate model, but they would not be a market maker.

Houses trade slowly, so would sit on Zillows books for a long time (days/months). Market makers on the stock market can have assets sit on the books for under a second. Houses are not fungible, which extenuates the slow trade problem.

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

#275

Post by erikpukinskis » Sat, Nov 27, 2021, 9:36 PM UTC

sklargh wrote: post #255

JumpCrisscross wrote: post #79

Earlier quoted context omitted.

> a market-maker for homes at a large scale…a house-flipping company These are different things. Archetypal market making involves simultaneously buying and selling an asset. Flipping involves buying, improving and later selling. One might be able to deal with the heterogeneity of houses by operating at scale. (Zillow attempted this.) One might also deal with the delay between buying and selling by hedging. (Zillow n…

I never got WeWork because it looked like they onboarded all of a 10-year lease's duration risk and then hoped to make up the difference somehow?

> somehow?

By marking it up and/or appreciation. They buy it for $500/sqft and then rent it for $100/sqft. In that hypothetical the breakeven is 5 years, plus overhead.

If the occupancy doesn’t work out in their favor, they may still make it up in appreciation.

What’s a duration risk?

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

#276

Post by javert » Sat, Nov 27, 2021, 9:39 PM UTC

Peanuts99 wrote: post #55

javert wrote: post #18

Earlier quoted context omitted.

Yes, you are wrong to hate flippers. You are wrong to hate anyone who is working hard to make an honest living. Yes, flipping is hard work. All successful work probably displaces someone else in some way. If you're good at your job, you're "denying" that job to someone less skilled. If you work in software, you're automating things that would require more labor if done manually. Fortunately, humans can pivot. Either…

That's a pretty binary take on an activity that exists on a ethical gradient.

Sorry, my sibling comment came across as a little too harsh and accusatory (too late to edit now).

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

#277

Post by erikpukinskis » Sat, Nov 27, 2021, 9:41 PM UTC

goldenkey wrote: post #180

zionic wrote: post #126

Earlier quoted context omitted.

Toxoplasmosis is a scary thing.

Indoor cats don't magically get diseases. Just like an indoor pet bat isn't going to magically contract rabies. They might if you are letting them out to go roam the terrain. I'm really tired of these silly perpetuated mythologies.

How can an indoor cat ever clean themselves though? It doesn’t seem like most indoor cat owners bathe the cats, do they?

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

#278

Post by Robotbeat » Sat, Nov 27, 2021, 9:44 PM UTC

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…

One huge difficult-to-quantify risk is the public opinion risk of being a very high profile company that flips houses. If it had succeeded to actually push up housing prices considerably, the whole company could be destroyed in the court of public opinion and therefore probably would be destroyed legally, regulatorally, and legislatively as well.

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

#279

Post by jason-phillips » Sat, Nov 27, 2021, 9:47 PM UTC

WarOnPrivacy wrote: post #182

seanmcdirmid wrote: post #170

Earlier quoted context omitted.

So Texas funds education at the state level via property taxes? That sounds surprisingly progressive of them. Washington state does something similar, though it’s more of a subsidy. Education is still mainly funded locally, but the state kicks in with its own funding for poorer districts, so Seattle property taxes subsidize schools across the state in Spokane.

> So Texas funds education at the state level via property taxes? That sounds surprisingly progressive of them. It sounds like that funding decision predates the current crop of state leadership

> It sounds like that funding decision predates the current crop of state leadership

If anything, today it is the folks in Austin (who are predominantly politically liberal) who decry their property taxes being used to fund rural school districts.

People who are actually from Texas know that we help each other out. That's how we roll.

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

#280

Post by reaperducer » Sat, Nov 27, 2021, 9:47 PM UTC

h2odragon wrote: post #68

_xnmw wrote: post #54

Good riddance. If large-scale house flipping took off, we might actually end up in a scenario where housing was treated as a speculative asset, with empty houses getting flipped between investors looking to make a quick buck, further lowering the supply of actual places to live (because housing units remain empty while being flipped), driving up the cost for families who just want a place to live. Oh wait...

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…

in our county, 20%+ of the housing is idle, owned by out-of-state companies, some of whom pay property taxes and some dont.

I've seen this personally, too. A house I rented until a couple of years ago was owned by a Chinese company, which also owned half of the other houses on the block. We all paid rent to the same LLC that forwarded the cash overseas, and did almost zero maintenance.

I think the housing market is so fucked no one really grasps the scale of the problem.

One thing I don't see discusses very often is the affect that large "master-planned communities" have on a city's housing prices. I've seen at least three cities where mega developers like Howard Hughes Corp own massive tracts of land, but instead of building houses, sit on that land waiting for the price of housing to go up. Sometimes the developers are very open about it. Sometimes not. But instead of allowing a free market to develop 5,000 new homes, they develop one lot here and one lot there.

Or worse — I've seen them build hundreds of homes and then sit on them, empty and vacant, waiting for prices to climb high enough to put the houses on the market. Again, a drip at a time, to keep the housing supply artificially small so they can boost their profits. Meanwhile, people have nowhere to live.