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How Zillow's homebuying scheme lost $881M

fullstackeconomics.com

281–290 of 684 posts

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

#281
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.

> If the population rises and we refuse to build more houses Building more houses is generally good too, but it's a bit of a cop-out to blame the whole situation on that. Totally independent of supply concerns, I would argue that it's not great that in so many areas the value of homes seems to be almost entirely divorced from the fact that people need homes to live in . Imagine if a bunch of very wealthy people just…

In areas where home prices are high, the vast majority of homes have people living in them. So the idea that home prices are inflated by people buying homes and not doing anything with them seems a bit suspect to me.

Additionally it kind of strains belief that people are buying homes, paying property tax, etc. just because they like collecting them the way a kid likes collecting pokemon cards. More likely they'd buy a home because they expect home prices to rise and they'll be able to sell the home for more in the future. It may be unintuitive, but if your market is not incredibly supply-constrained this is actually a good thing.

Here's why. Let's say there's an up-and-coming college town, and speculators think that in a few years the town will become trendy and many people will want to move there. If they're right, demand will go up and home prices will rise. That means you can buy a home now on the cheap and sell it in a couple years when houses are more expensive to make a profit. But of course, when you buy a house now, you're contributing to demand for houses, so you're making the price rise in the present in response to a change in demand you anticipate happening years from now. Since home prices are rising, it now becomes more profitable for people to build new homes. (Their costs haven't changed, but now they can sell the homes to speculators who are willing to pay a lot because they expect to sell the homes to the people who'll move in as the town becomes trendier.) So what you get is people building homes now in preparation for people wanting to move here years from now. Making homes available will cause home prices to go down, until the market is at equilibrium and homebuilders are no longer willing to build homes for the price that homebuyers are expected to be willing to pay.

So in theory it all works out quite nicely. In practice, people who own the homes hate this because they like that the home they bought for $200k in the 90s is worth $2M now, so the lobby to get local governments to ban people from building homes. If there were enough homes that everyone who wanted to live there could, the prices of housing would come crashing down and homeowners would lose the bag they worked so hard to get (not).

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

#282
Some twitter threads from Zillow insiders I saw around this referenced a couple things:

* the pricing algorithm was good, but the business leadership got hungry and kept overriding it with higher offers in the hunger to do more business.

* they were trying to do so much business that they couldn't source the labor need to flip - painting, landscaping etc. They were so backlogged they were just sitting on houses they overpaid for (due to overriding the algorithm), and the constant cashflow aspect that makes flipping work at scale was destroyed

Matt Levine's take was something like:

if the pricing algorithm is good but it tells you that the flip strategy is only profitable on relatively small number of properties, then it's not profitable at scale cuz you're paying a big engineering team to create, tune and maintain it.

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

#283
post #38

Earlier quoted context omitted.

Are there jobs near those houses? Specialist doctors? Good schools? I WFH so I could probably buy one of those houses, but most of my friends in my age bracket are expected to show up to an office 5 days a week, so those suitable houses are no good for them.

Yeah those are good points. I live in a bit of a bubble where most folks around me either WFH or have to travel to work. There are absolutely "specialist doctors" in every large city though...

Is my family there? My church? The park where I learned to play soccer? My daughter's best friend?

When you sit around talking about choice of living area without weighing, or even acknowledging these connections, do you realize how inhuman this sounds? Do you not have similar things binding you to a place?

Shit even specialist doctors, have you ever depended on one? If you're needing long-term specialist care you got some major shit to deal with. Rapport, trust, history with an individual doctor is an important part of that care. And people need care aside from just the doctors. Who is driving you to these appointments, caring for you afterwards? Are they coming to the new city with you?

There are a lot of things in a place you know. You can't reduce all or really very many of them down to mere transactions in a marketplace.

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

#284

Earlier quoted context omitted.

Cites are not fungible, I hate that this always comes up. I have relationships here going back to my childhood, I sometimes visit the grave of the person I am named for, I spend every sunday afternoon cooking and eating with the 97-year-old who took me in and nursed me back to health decades ago. If I move to another city these things aren't coming with. Now you can dismiss these things as inherently less meaningful…

> A necessity of life has become a competitive investment vehicle My perspective is that a necessity of life (land) has started bumping up against the limits of nature. Population has drastically increased, and for various reasons such as increased access to information, economic agglomeration, etc, certain areas of land are in far more demand than others relative to supply. Allocating scarce resources (sufficient la…

> My perspective is that a necessity of life (land) has started bumping up against the limits of nature. Population has drastically increased, and for various reasons such as increased access to information, economic agglomeration, etc, certain areas of land are in far more demand than others relative to supply.

I think this is another all-too-convenient scapegoat, similar to "we just need more houses." I would again suggest that perhaps the problem really truly is that people are using houses as collectibles rather than as places to live.

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

#285

Earlier quoted context omitted.

Why would anyone trust Zillow’s opinions over anyone else’s opinion? Everyone has access to the same historical sales data that the market actually cleared at. In fact, it is has never been easier for the average person to research historical sales information. They can filter the parameters of the house they are interested in the area they are interested and find all the previous sales data, all while sitting on the…

People tell outrageous lies on Facebook all the time and they seem to work. Deception works (especially subtle deception), and laziness is a thing. Also, Zillow's current value estimates are about "current" values, not past values.

Zillow’s current value estimates are their opinion (or what they want people to think is their opinion). Regardless, it is no different than a real estate agent or a cashier at target saying they think a specific property is worth $x.

At the end of the day, a buyer and seller coming together and agreeing on a price is the only thing that matters. A seller pays as much as they do because they do not have a better option, and a buyer sells for as little as they do because they have no better option. Zillow cannot affect this.

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

#286
post #221

Earlier quoted context omitted.

> If the population rises and we refuse to build more houses Building more houses is generally good too, but it's a bit of a cop-out to blame the whole situation on that. Totally independent of supply concerns, I would argue that it's not great that in so many areas the value of homes seems to be almost entirely divorced from the fact that people need homes to live in . Imagine if a bunch of very wealthy people just…

Thing is if people start hoarding medicine then new companies can pop up and fill in the gap, or existing ones can increase production, making the whole thing pointless to do. Same goes for every other "necessary to life" product. Temporary disruptions will be handled by the market in the long term, and in the worst case government can step in and regulate. Housing is probably the only sector where all the laws and r…

Okay, but how deep is the appetite for buying medicine as collectibles? What if doubling the production of medicine just means that now the wealthiest 2% collects all the medicine instead of the wealthiest 1%? Not to mention, how long will it take to ramp up all this medicine production?

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

#287

Earlier quoted context omitted.

> 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. This is one of those things that really just confuses me. It's like no one could agree on happy medium between "landlord can eject you whenever they want for whatever reason" and "no one can make you leave, ever, for any reason". And to whoever downvoted yo…

> they can't do much if you stop paying rent. I'm aware of specific stories where bad-faith tenants have made enforcement difficult , but I'm also aware of enough specific stories from the other side where tenants -- even some who have committed no violations -- have found themselves without housing to know that as a total generalization, these statements are false. And you don't get to a resident-sourced homelessnes…

> I'm aware of specific stories where bad-faith tenants have made enforcement difficult, but I'm also aware of enough specific stories from the other side where tenants -- even some who have committed no violations -- have found themselves without housing to know that as a total generalization, these statements are false.

I'm aware of hundreds of stories about homicidal cardiologists, but I wouldn't try to make a judgement about cardiologists based on that because I have no reason to think the stories I'm exposed are a representative sample of cardiologists. In your case, tenants who have committed no violations finding themselves evicted make a much more sympathetic story than landlords who want to evict an annoying tenant, so I'd expect the former to be very overrepresented in what you hear.

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

#288

Earlier quoted context omitted.

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).

Yeah true, couldn't find London specific stats. Fair guess is that the lions share of UK to earners are based in London.

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

#289
post #97

Earlier quoted context omitted.

As a potential landlord who is doing this very thing right now, it isn't really "throwing money away", because of asset appreciation. If you get stuck with a bad tenant it's way more hassle than if you had just let it sit and AirBnB'd it every once in a while. Especially for properties where the rent is less than the appreciation per month.

You are neglecting opportunity costs: if you could earn double (appreciation + rent) instead of just appreciation, you're leaving money on the table.

That extra money comes with additional risks, which the parent has judged to be not worth it.

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

#290

Earlier quoted context omitted.

> A necessity of life has become a competitive investment vehicle My perspective is that a necessity of life (land) has started bumping up against the limits of nature. Population has drastically increased, and for various reasons such as increased access to information, economic agglomeration, etc, certain areas of land are in far more demand than others relative to supply. Allocating scarce resources (sufficient la…

> My perspective is that a necessity of life (land) has started bumping up against the limits of nature. Population has drastically increased, and for various reasons such as increased access to information, economic agglomeration, etc, certain areas of land are in far more demand than others relative to supply. I think this is another all-too-convenient scapegoat, similar to "we just need more houses." I would again…

As an illustration of how different the supply/demand situation is across the US, see this data:

https://www.redfin.com/news/?p=73975

All the data I see does not indicate that people are buying regular houses as collectibles in hot markets. There is simply that much demand and basically no supply, especially in western cities. I do not have hard data on how many of these sales are owner occupied or not, but from personal experience over the past 10+ years, none of these neighborhoods seem empty for part or all of the year.

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