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Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

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Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#71

Post by datavirtue »

beamatronic wrote: post #8
woeirua wrote: post #7

This is kind of a big deal in the real estate sector. The only reason that Zillow would sell everything right now is if they believed that the carrying costs of the properties until they (eventually) sell would eat all of their profits. They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly. There's no wa…

Agree 100%... I'm astonished that a large corporation trying to get into this business, would "bite off more than they could chew". Don't they have MBAs and financial models to assess this sort of thing?

Yeah, throw your model at: "contractors took six months longer than expected to finish the kitchen"

Extrapolate that out a hundred thousand times and you get a sense of what they were trying to manage. How did they predict remodel costs? Pre-pandemic material costs and back-of-the-napkin labor estimates?

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#72

Post by qqqwerty »

muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

This is an interesting lesson in algo trading run wild. Roughly, house prices have a fundamental ceiling, and it is determined by the size of the monthly payment that banks will allow the typical homebuyer to assume when approving a loan.

If Zillow was the only iBuyer in a particular market, then that ceiling would likely have held, as all other non-zillow sales would still be operating under the loan approval constraint, and that would get reflected in the comps. But in a market with multiple ibuyers, none of which are capital constrained, it would make sense that they run up the prices against each other, past what the local homebuyers can afford.

Not sure how much that actually played a role here. But could be fun to do some back of the napkin math to see if that was the case in some of these markets.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#73

Post by omgwtfbyobbq »

davewritescode wrote: post #18
woeirua wrote: post #7

This is kind of a big deal in the real estate sector. The only reason that Zillow would sell everything right now is if they believed that the carrying costs of the properties until they (eventually) sell would eat all of their profits. They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly. There's no wa…

You don’t need ML algorithms to know that interest rates in the medium term will be rising which puts downward pressure on home prices.

It can, but it's more downward pressure on higher cost homes (eg coastal metros). Even with higher rates, average home prices can increase like in the 60s through 80s, albeit just to keep up with inflation from higher interest rates.

https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/FEDFUNDS

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#74

Post by totablebanjo »

pezzana wrote: post #34

> ‘We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,’ CEO tells investors. That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where yo…

A counterpoint to your last statement is that if Zillow really knew residential real estate they wouldn’t have had such large losses this quarter.

It really calls into question their pricing algorithm, but I give them credit for actually trying to get into buying and selling properties.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#76

Post by fortylove »

qbasic_forever wrote: post #60

That's about 2k employees in the Seattle area that will be looking for a job very soon. Who's hiring in the area? Amazon had a bad quarter too so I wonder if they're cooling off a bit on recruiting and hiring for a moment. Might be nice to have a Seattle area hiring/job opportunity thread of some sort to help folks.

Were these mostly SDEs? If any Zillow employee is reading this: best of luck! This must be hard to go through.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#77

Post by quickthrowman »

edrxty wrote: post #21
tppiotrowski wrote: post #14

"The surprising exit, announced with pedestrian quarterly profits, thrashed shares in another rough trading session Tuesday, a day after an analyst said two-thirds of the homes it bought are underwater." https://fred.stlouisfed.org/series/MSPUS The fed chart shows almost hockey stick growth in housing prices this year. How can the Zillow properties be underwater, did they just massively overpay up-front?

Yes, yes they did. The vertical part of the hockey stick is EVERYWHERE. Homework: go on zillow and find the most depressing row house in urban Detroit/Cleveland/wherever with enough pricing history to have a graph. You will see that exact same line shape. Literally everything has doubled since around 2014. Completely bombed out crackhouses were a 300-500% ROI in that period. You couldn't lose money even if you set th…

> Everything has gone up massively and for seemingly no reason.

The reason is quite obvious. Just like bond values and yields are inversely correlated, mortgage rates and home values are inversely correlated. Here is a chart of the 30Y mortgage rate, it should explain everything.

https://fred.stlouisfed.org/series/MORTGAGE30US

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#78

Post by sumedh »

silisili wrote: post #49

I don't get Zillow's play here. They were for a long time the de facto neutral party everyone used to look at houses. Great. Then they got into doing contracts apparently, still OK. Then they started competing against people and overbidding everyone, at the height of what appears to be the biggest housing boom of my lifetime. This was not only apparently financially dangerous, but an act that puts them in a bad light…

> I cannot think of how anyone thought this was an OK idea.

I guess they assumed flipping houses would have more revenue and profits.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#80

Post by _fat_santa »

pezzana wrote: post #34

> ‘We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,’ CEO tells investors. That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where yo…

Other commenters on this and the previous thread pointed out, sometimes with first-hand experience, that Zillow would vastly overpay them for their home. I think this is less to do with the housing market in general and more to do with their tech.

Zillow's iBuyer program hit the scene like a bull in a china shop. The real story is that they rushed into this space, had underdeveloped algorithms, overpaid for homes, and now the chickens are coming home to roost.

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