Zillow is setting up their home-flipping business in Phoenix and Las Vegas, which are two very safe towns for taking a risk.
The vast majority of houses there are easy-to-value tract homes, and relatively inexpensive compared to the coasts. But Zillow’s stock price has plunged 10% since they announced their new venture.
In this cnbc article, Mahaney makes a good point. Having skin in the game will assist Zillow to better gauge and predict market conditions. When we still hear the typical market nonsense from N.A.R., Zillow could become the voice of real estate – if they’re not already:Link to CNBC article
In May 2017, Zillow announced the launch of Instant Offers, which enables home sellers in the Las Vegas and Orlando test markets to get cash offers from potential investors on Zillow’s platform. The company said homeowners prefer the process, and that most of them who requested an Instant Offer ended up selling their home with an agent.
“Home sellers welcome a hassle-free experience selling your home without decluttering your garage or taking the kids out of the house,” Rascoff said.
Rascoff said the company will take on collateralized debt to purchase the homes, and hopes to have between 300 and 1,000 homes held for sale by year’s end. He called the move “industry friendly,” benefiting buyers, investors and agents. He also said it could help stimulate the real estate market and open up new inventory for prospective buyers.
“There are people that are basically stuck in their home that would love to go buy another home, but can’t sell,” Rascoff said. “This could provide the ability to unstick people from their homes.”
Mahaney said that it will help Zillow test how much the real estate market is turning.
“This is an interesting experiment on the company’s part,” Mahaney said. “They’ve reached the point of scale with both real estate agents and with consumers. There are data points in the market that suggest this way of buying and selling homes is really starting to gain traction.”
The program will start this year in Phoenix and Las Vegas. Zillow didn’t say when it will expand into other markets.
I doubt any of the corporate flippers will ever come to the high-priced California coastal markets – with fewer tract homes and high cost, it’s too risky.
Corporate flippers = OpenDoor, etc.
Zillow and Redfin can feed their ancillary businesses, and even lose some money on flipping if it enables their agents to sell more.
How is this not a market top indicator? Zillow is currently skimming off the cream without any of the burdens/risk/cost of owning inventory. Hey, but what the heck, it’s shareholder money anyway, right?
Also, how does this not damage/destroy whatever goodwill Zillow still had with the REALTOR community? Doesn’t this goodwill have value that they have spent years cultivating?
“Instant Offer” is not “Fair Offer” nor “BPO” nor “Market Price” nor…
I cannot see how this mechanism can serve the buyer or seller or public.
This is not the top of the market. Our business has taken off since the Trump tax breaks and orders are higher than ever. I predict no downturn for 10 years but slower appreciation
But what do I know?
I spoke with a real estate coach today who speaks with realtors all around the country. He said the market is slowing everywhere – coast-to-coast.
The higher rates, lack of inventory, blah blah are all contributing factors, but my number one reason is how much mustard sellers are adding to their list prices. Nobody is happy to get what the last guy got, and the extra vig seems like 10% or more.
Another sign of a top – it’s spinning out of control (thanks daytrip):
Rising real estate costs, demographics shifts, and low inventory have hamstrung homebuyers for years. But according to Danielle Hale, chief economist for Realtor.com, this spring buying season may bring buyer frustration to a boil.
“I think it’s fair to say this is the most competitive housing market we’ve seen in recorded history,” says Hale. “There’s record low inventory and strong interest from buyers in getting into the housing market. There are a lot of buyers, and not a lot of sellers.”
According to Hale and other economists and real estate industry observers, many factors have created this “imperfect storm” of high demand and low supply. Underbuilding had been a key factor, due to cost, labor shortages, and zoning and regulatory barriers to new construction.
“We’ve been paying the bill for underbuilding for some time, and every year, it gets worse,” she says. “We’re not only not keeping up, we’re falling further behind.”
This shortage—inventory has decreased for 42 consecutive months and is down 8.5 percent from last year, according to Realtor.com data—comes as demographic trends conspire to create even more competition.
Millennials are reaching prime homebuying age—in 2020, the greatest proportion of that generation will be turn 30—just as baby boomers are looking to downsize. This has created especially fierce competition for smaller homes, the type of starter homes that most first-time buyers desire.
This dynamic can be especially frustrating for young adults because they may be bidding for the same smaller home as someone from an older generation who can lean on the accumulated wealth of decades of homeownership.
Things are better further up the housing market. Hale says the high end of the housing market, above $450,000, has seen a 1 to 2 percent increase in inventory over the past year.
Realtors are seeing listings move off the market as “quickly as they’ve ever seen them,” Hale says. In March, homes stayed on the market an average of 63 days, a 7 percent drop year-over-year from 2017. Inventory is predicted to move even faster in the summer, as it usually does, and Hale expects many markets to set records.
She also expects aggressive tactics from buyers. A Realtor.com survey of potential buyers found that 40 percent plan to put more than 20 percent down, and 26 percent are willing to pay above asking price. A survey in early March by Toluna Research found that 40 percent of current buyers have been searching for more than seven months.
“Buyers right now are staying informed and signaling they’re serious, that’s how they’re staying competitive,” she says.
Recent mortgage data reinforces the difficulty in achieving affordable homeownership.
More borrowers with conventional home loans are spending a greater percentage of their income servicing these loans, according to data from CoreLogic. This December, more than 20 percent of borrowers were spending more than 45 percent of their income on mortgage payments each month, a percentage not seen since the buildup to the Great Recession.
Analysis from Arch Mortgage Insurance Company found that the size of a monthly mortgage payment needed to afford a home rose 5 percent in just the last three months, and may rise an additional 10 to 15 percent by year’s end. Mortgage rates hit 4.42 percent last week, according to Freddie Mac. That’s low compared to traditional rates, but an increase from the recent run or rock-bottom rates.
Zillow does have brand-name recognition which could make the difference too: