Why Zillow stop buying houses and what does that mean for Housing Market?

One of the most talked about question that has been circulating the internet is why has Zillow stopped buying houses. The short answer is – there are many of reasons.

On October 18th, 2021 and according to PRNewswire/ Jeremy Wacksman, Zillow’s chief operating officer said  — Due to a backlog in renovations and operational capacity constraints, Zillow announced its Zillow Offers business will not sign any new, additional contracts to buy homes through the end of the year.

That statement is a professional way of stating three main reasons why Zillow Offers [operated by Zillow Group, Inc. (NASDAQ ticker symbol : Z and ZG) ] failed at their own business. 

The first reason why Zillow Offers had problems is size. When you own 5080 + houses that are in various stages of rehab; you can’t just push a button to sell and expect to make money.

The real estate market is going to correct as soon as the Federal Reserve raises interest rates due to inflation. The current average appreciation rate for a house in the USA is 14.5%, a stark difference from 4% in 2019. This market is not healthy. It is definitely a seller’s market.  Caused by too few of houses built from 2008 to 2012, high demand, and too much money in the system from the I house buyers.

Zillow Offers knows that the markets are going to correct.  They are the king of house buying and have all the information research and statistics on housing across the United States of America. 

The second reason Zillow Offers had to stop buying was there buying model. Zillow Offer was buying houses that needed repairs, on only an. 09% margin. That strategy works in a appreciating market like we have experienced in that last few years [2014 to 2021 beginning of the 3rd quarter in Central Ohio].

The problem is that real estate is cyclical.  That’s means the price is affected by macroeconomic or systematic changes in the overall economy. In Zillow Offers case inflation. Housing prices outpaced buyer’s ability to pay the higher prices.  According to the 3rd quarter shareholder letter Zillow Offers stopped buying because of “unintentionally purchasing homes at higher prices than our current estimates of future selling prices,”.

The third reason Zillow Offers had to stop buying was stated in the press release that Mr. Wacksman, Zillow’s chief operating officer said on October 18th, which was operational capacity constraints. The real estate market is no different than any other business these days good labor and materials are getting delayed. Time is of the essence in any real estate transaction.  Due to acquisitions and holding costs.  Multiple the constraints on thousands of houses in a declining market and there is a real problem. To sum every thing up, real estate investing is a business that is based on strategies, procedures, and a proven buying model. If you are interested in learning more about passive hands-off real estate investing in any market [buyers or sellers] Go to https://www.centralohrealestateinvestment.com/go/401k-ira-investments-in-ohio/

So, What Does This Mean for the Real Estate Market?

No one really knows what direction [Buyers Market or Sellers Market] the real estate market is headed. But there are signs and history that can give clues as to where it is headed.

We already spoke about the fact is that real estate is cyclical. Meaning properties go up in price and go down in price over time. This is based on the consumers buying power and the demand in the market.  Like I said already the real estate market will switch from a sellers market to a buyers market when the Fed raise the interest rate and the mortgage rates go up.

When will the US Federal Reserve Raise Rates?

According to (Reuters) – The Federal Reserve will wait until 2023 before raising interest rates. The only circumstance that could change that in my opinion is higher inflation forcing the hand of the reserve. The demand for house is still high. The USA Population is getting older and babies are being born every day. Plus there is a lot of liquidity in the system.

In my personal opinion prices on houses will decline in the future with longer time on the market. This was caused by home prices getting too high for the market to support. But this will not result in a real estate crash.

Demand is too high in the housing market and there is plenty of cash for lenders to lend.  

Written by

Roger Loesel with Capitol Realty Realtor for Central Ohio Real Estate Investment LLC

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