Zillow’s unexpected announcement in October that it was temporarily pausing its home-buying activities raised many analysts’ eyebrows. Now, the company is reportedly offloading thousands of homes at a discount.
The company’s Zillow Offers division is what’s known as an “iBuyer” — it purchases and sells homes directly to consumers, typically renovating them in between.
He added that the pause would enable the company “to focus on sellers already under contract” and the company’s existing inventory of homes. A spokesperson for Opendoor OPEN, -13.47% said that the company “is open for business and continues to scale and grow.” Meanwhile, Opendoor co-founder Keith Rabois said on Twitter TWTR, -1.87% that Zillow’s claims regarding supply-chain bottlenecks were “just an excuse.”
Zillow’s place in the iBuying landscape is different from some of its competitors. Like Redfin, Zillow has other business lines it can depend on for revenue. Wedbush analyst Ygal Arounian downgraded Zillow shares to “neutral” from “outperform” in light of the pause on the company’s home-buying pursuits. Among his concerns are that rivals like Opendoor will continue to increase market share while Zillow takes a breather, making it harder for Zillow to bounce back.
An August report from independent real-estate analyst Mike DelPrete found that Zillow, Offerpad and Opendoor were all paying well above the value of homes to purchase them in 2021, whereas back in 2019 they typically purchased properties at a discount. Data from real-estate company Attom Data Solutions found that the typical home-flip only attracted a 33.5% profit, which is the lowest since the first quarter of 2021.
If Zillow indeed does expect home prices to cool — perhaps in response to rising mortgage rates — it could be taking a step back to let the market reach its equilibrium and avoid notching too many losses, particularly given the lengthy turnaround times on renovation projects today.
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