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How Zillow's homebuying scheme lost $881M

fullstackeconomics.com

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Re: How Zillow's homebuying scheme lost $881M

#51

Post by jliptzin »

paxys wrote: post #40
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

One can blame Airbnb, Zillow or whoever else, but the truth is that speculation in real estate and vacation towns have both been a thing for a very long time. If the population rises and we refuse to build more houses, the existing ones will get more expensive no matter what. The solution is out there in front of us but everyone prefers to dance around it.

There's even lower hanging fruit than that. I have a 6 bedroom house, but local regulations state that I am not allowed to live with more than 2 people unrelated to me. Plenty of parking, tons of people looking for housing, but legally I am forced to keep 3 bedrooms empty.

Re: How Zillow's homebuying scheme lost $881M

#52

Post by adflux »

jliptzin wrote: post #51
paxys wrote: post #40

Earlier quoted context omitted.

One can blame Airbnb, Zillow or whoever else, but the truth is that speculation in real estate and vacation towns have both been a thing for a very long time. If the population rises and we refuse to build more houses, the existing ones will get more expensive no matter what. The solution is out there in front of us but everyone prefers to dance around it.

There's even lower hanging fruit than that. I have a 6 bedroom house, but local regulations state that I am not allowed to live with more than 2 people unrelated to me. Plenty of parking, tons of people looking for housing, but legally I am forced to keep 3 bedrooms empty.

Good point, never thought about that. Here in the Netherlands, it used to be "common" to house other people than your direct family for some time, e.g. during harvest season.

Re: How Zillow's homebuying scheme lost $881M

#53

Post by ourmandave »

I'm planning to sell very soon and love the iBuyer model.

Don't have to deal with showings, or fix anything, or hope a buyer's financing doesn't fall through at the last minute. To me that's worth whatever percent they're getting.

Sadly, no iBuyer operates in my fly-over state.

Re: How Zillow's homebuying scheme lost $881M

#54

Post by sokoloff »

lordnacho wrote: post #49
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

This has perplexed me as well. Here in the UK, the top 1% of incomes is £175K. Assuming the bank lets you borrow 5x, and you're married to someone with a more middling income, you can borrow ~£1M. Yet there's a ring around London where it's hard to see any family homes that are under £1M. I mean sure maybe they're sitting on equity or mom and dad are contributing, but by my estimation there are a huge number of peopl…

What's the top 3% of income of people who work in London? It's probably not "all of the UK" that matters as an income reference, but rather the people who are earning incomes and wanting to live in that area (plus all the people from around the world who would consider buying a house in/near London, but not 100 miles away from London).

Re: How Zillow's homebuying scheme lost $881M

#55

Post by mwt »

sokoloff wrote: post #31
mwt wrote: post #27

Earlier quoted context omitted.

Whether or not the market works itself out later, it puts everything into a weird state while the bidding war is going on. If iBuyer1 and iBuyer2 together buy up the inventory of a zip code for 120% of asking, then what are people who are willing to go to 105% to do? Maybe it just resets the market to whatever the drunken algorithm decided it to be.

Buy in one of the surrounding zip codes? Wait out the idiots?

In a housing bubble, hopping a zip code over isn't always possible.

One can always wait out the market. You could tell me to simply wait for the next housing crash to buy up property, but until that happens, it's not an option.

The whole observation the other person made

> automation creating adverse market incentives for smaller market participants

matters not just in the long-term state but while the adverse conditions exist.

Re: How Zillow's homebuying scheme lost $881M

#56

Post by eli »

lordnacho wrote: post #49
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

This has perplexed me as well. Here in the UK, the top 1% of incomes is £175K. Assuming the bank lets you borrow 5x, and you're married to someone with a more middling income, you can borrow ~£1M. Yet there's a ring around London where it's hard to see any family homes that are under £1M. I mean sure maybe they're sitting on equity or mom and dad are contributing, but by my estimation there are a huge number of peopl…

What's the top 1% for net worth though?

Re: How Zillow's homebuying scheme lost $881M

#57

Post by paxys »

jliptzin wrote: post #51
paxys wrote: post #40

Earlier quoted context omitted.

One can blame Airbnb, Zillow or whoever else, but the truth is that speculation in real estate and vacation towns have both been a thing for a very long time. If the population rises and we refuse to build more houses, the existing ones will get more expensive no matter what. The solution is out there in front of us but everyone prefers to dance around it.

There's even lower hanging fruit than that. I have a 6 bedroom house, but local regulations state that I am not allowed to live with more than 2 people unrelated to me. Plenty of parking, tons of people looking for housing, but legally I am forced to keep 3 bedrooms empty.

Agreed. Heck I know several people who prefer to keep their condos/houses empty rather than rent them out at market rate because of 100% tenant friendly city and state laws. Someone can move in and refuse to pay rent, refuse to leave, use your house as a drug den, destroy your property and lots more, and you can do nothing about it. At that point the city is just incentivizing homeowners to contribute to the housing crisis.

Re: How Zillow's homebuying scheme lost $881M

#58

Post by uncomputation »

haroldp wrote: post #24
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

> I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. But iBuyers are always low-balling. They are bidding under the asking price with an all-cash offer that they hope will make up in speed and ease what it lacks in price. > It's not that uncommon to see nearly entire neighborhoo…

> iBuyers are always low-balling

Low-balling according to their own estimate (Zestimate) with imperfect knowledge. If this Zestimate overvalues a house, but the iBuyers assume “we are low-balling anyways,” they may find themselves in an iBidding war ending in the winner’s curse: whoever pays the most for the overvalued house wins.

Not a problem though right? They overvalue some, undervalue others, it evens out. But, as the article points out, the nature of this algorithmic buying is that the iBuyers will only - or at least predominantly - end up with the houses they overpaid for or got only a slightly good deal on because many sellers will be willing to take longer for a better deal. The end result is very thin margins or, as seen with Zillow, substantial losses as they hold a lot of lemons.

Re: How Zillow's homebuying scheme lost $881M

#59

Post by rank0 »

alistairSH wrote: post #45
rank0 wrote: post #18

Earlier quoted context omitted.

I think people should expand what "desirable" means to them. There's a ton of suitable houses all over the country. Everyone seems to need to own a SFH in a trendy part of a trendy city.

“All over the country” doesn’t have good jobs, good schools, access to entertainment, etc. But, I agree on the SFH part. The expectation that a 3000sqft house on 1/4 acre is the norm is completely unsustainable. Yet that seems to be what many people want. Even in high COL areas where demand and cost should be driving density.

There are absolutely good jobs in every city in America. Entertainment can mean anything...and frankly people should be able to find fun things to do on their own without needing bars, nightclubs, concert venues, etc.

I concede that good schools are a major barrier. I'm young and won't be having children anytime soon so I don't think about it much.

Where I live, the public schools are pretty rough. It's cheaper to stay here and send your kids to private school rather than move to a family dominated neighborhood with excellent public schools.

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