Zillow's data show real estate crash is here? Any insight?
Member since 2018 · 2 posts · 1 vote
Zillow's data show real estate crash is here? Any insight?
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San Antonio, TX · Member since 2019 · 930 posts · 836 votes
4y@Amey Phatale
I think Zillow’s stock decline has a lot more to do with their failed attempt to get into the flipping business than housing in general.
Houses in my area seem to still be solid.
48 Replies
- South Jersey · Member since 2021 · 117 posts · 77 votes4y
@Amey Phatale While anything is possible, I would take any of Zillow's recommendations/trends with a grain of salt. Based on their over-the-top Zestimates and recent house buying program failure, it illustrated that even these large groups don't necessarily understand the market.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes4y
To clarify, you believe that Zillow's stock price and the real estate market are correlated. Then because Zillow's stock price has dropped, thus prices in Real Estate must?
Which part of the market does Zillow's stock price correlate with? Residential, Multi Family, light Industrial, city office, life science? Also, which MSA have more of a relationship than others?
since correlation doesn't equal causality, what links the two?
- 4yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Zillow's stock crashed as they made a huge mistake when they bought all the properties in Arizona and couldn't flip them.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes4y
Originally posted by @Bill F.:
To clarify, you believe that Zillow's stock price and the real estate market are correlated. Then because Zillow's stock price has dropped, thus prices in Real Estate must?
Which part of the market does Zillow's stock price correlate with? Residential, Multi Family, light Industrial, city office, life science? Also, which MSA have more of a relationship than others?
since correlation doesn't equal causality, what links the two?
Exactly. ZG managed to lose about $540,000,000 buying and owning houses since 2018, the largest run up in real estate values in history. A lesson to us all to not to over-pay.
Bloomberg and others wrote articles stating Zillow's inventory of homes is about 7,000. They are looking for an institutional buyer at $2.8B.
We don't know where all these houses are (I gather a lot are in Phoenix) or what % is market-ready, etc but most likely a hedge fund will buy them in one shot with the goal most likely to hold and rent out 90% or whatever of them. Higher end retail houses have certainly not been my target to hold as rentals.
So it's doubtful the overall housing market is going to be flooded with inventory. Specific markets Z did a lot of buying in may see a bunch of new rental inventory with corporate landlords. Possibly not good for landlords in those specific markets depending on rental demand.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Steve Vaughan:
Originally posted by @Bill F.:
To clarify, you believe that Zillow's stock price and the real estate market are correlated. Then because Zillow's stock price has dropped, thus prices in Real Estate must?
Which part of the market does Zillow's stock price correlate with? Residential, Multi Family, light Industrial, city office, life science? Also, which MSA have more of a relationship than others?
since correlation doesn't equal causality, what links the two?
Exactly. ZG managed to lose about $540,000,000 buying and owning houses since 2018, the largest run up in real estate values in history. A lesson to us all to not to over-pay.
Bloomberg and others wrote articles stating Zillow's inventory of homes is about 7,000. They are looking for an institutional buyer at $2.8B.
We don't know where all these houses are (I gather a lot are in Phoenix) or what % is market-ready, etc but most likely a hedge fund will buy them in one shot with the goal most likely to hold and rent out 90% or whatever of them. Higher end retail houses have certainly not been my target to hold as rentals.
So it's doubtful the overall housing market is going to be flooded with inventory. Specific markets Z did a lot of buying in may see a bunch of new rental inventory with corporate landlords. Possibly not good for landlords in those specific markets depending on rental demand.
7k house unless concentrated all in one market is just a dimple on a pimple LOL.. this is a failed exercise by Zillow.. And absolutely its common knowledge you make money in a few ways in RE.. When you buy ( get a good to decent deal or value add) organic appreciation ( which zillow has not owned them long enough to see much of a run since they paid tippy top of market. and then if they are rentals then you have cash flow tax bene's and debt paydown by others.. no big mystery here.. Buy high sell low is a corner stone of investing in America look at the stock market..
- Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes4y
I do not think we should see their failure as a market indicator. The program was never profitable, and became more bloated as it grew. It was overdue to be killed. ibuying hasn’t been too profitable for others either. It’s a bad business model, made worse by Zillow recently overpaying and selling for less.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes4y
Originally posted by @Steve Vaughan:
Originally posted by @Bill F.:
To clarify, you believe that Zillow's stock price and the real estate market are correlated. Then because Zillow's stock price has dropped, thus prices in Real Estate must?
Which part of the market does Zillow's stock price correlate with? Residential, Multi Family, light Industrial, city office, life science? Also, which MSA have more of a relationship than others?
since correlation doesn't equal causality, what links the two?
Exactly. ZG managed to lose about $540,000,000 buying and owning houses since 2018, the largest run up in real estate values in history. A lesson to us all to not to over-pay.
Bloomberg and others wrote articles stating Zillow's inventory of homes is about 7,000. They are looking for an institutional buyer at $2.8B.
We don't know where all these houses are (I gather a lot are in Phoenix) or what % is market-ready, etc but most likely a hedge fund will buy them in one shot with the goal most likely to hold and rent out 90% or whatever of them. Higher end retail houses have certainly not been my target to hold as rentals.
So it's doubtful the overall housing market is going to be flooded with inventory. Specific markets Z did a lot of buying in may see a bunch of new rental inventory with corporate landlords. Possibly not good for landlords in those specific markets depending on rental demand.
I think you hit it on the head pretty well Steve. I forget where I read it, but there is an article out there which lays out in what cities all of the homes are located.
Nothing shocking, a few hundred homes in all of the major "hot" cities, Atlanta, Austin, Dallas, Jacksonville Fl, Charlotte, ect. I don't think it was more than 500 in any city and in most less than 300. A blip on the screen. A few regional institutional players will buy big chunks and make them rentals. If anything, this is bad news for BP folks since it most likely means more rental supply like you said.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes4y
Originally posted by @Bill F.:
Bill, I think we can see how this is going to go from a technical perspective very easily.
It is highly, highly unlikely that the housing stock the Zillow algorithms targeted is rich in SF that would make high-quality SF rentals, the kind of modest, understated, well-built places with a really sound traditional design and reasonable building quality that bear up under years of low-maintenance operations under heavy rental usage.
So they're going to shuffle off a lot of "little boxes made of ticky-tacky" onto these institutional buyers, who are going to hire professional property managers who are not particularly interested in rigorously controlling maintenance costs over the long haul and not at all incentivized to carry out high-quality long-term preventive maintenance schemes, or to treat tenants well.
There's an awful lot of wiggle room in that pattern there for the small operators coming up in single-family to build their portfolios and screen out the best tenants. There will be more rental supply for a while but it will not be particularly cheap-to-run or soundly-run rental supply. Not sure this will be a bad development for small landlords like me.
But as for a real estate crash, no, I think you're absolutely right. This is not the beginning of the end. I am increasingly convinced that the end of this real estate up cycle will come when Biden really does something dramatically stupid to increase housing supply, a kind of well-meaning academic bonehead lefty move to equal GW Bush's well-meaning academic bonehead righty moves to open up the housing market by deregulating lending to subprime buyers, Biden will absolutely have to promise some totally daft housing lunacies to his base in his bid to get re-elected in 2024, that's for sure, while anyone who comes up on the right will just have to point to the affordable housing shortage as a failure of federal policy and not actually make any firm promises about how to fix it.
- Member since 2021 · 237 posts · 153 votes4y
@Amey Phatale
Unless the entire “market” is folks buying at record prices, then trying to flip at new record prices, I think we’re okay here.
It was a poorly thought out and poorly executed program.
- Investor · Atlanta, GA · Member since 2020 · 253 posts · 240 votes4y
I just hope this causes them to adjust their "zestimates" to be more realistic instead of inflated to entice homeowners to sell to zillow.
- Coppell, TX · Member since 2015 · 485 posts · 310 votes4y
there is another post about this, regarding the AZ properties zillow purchased. it won't affect the local market, locals said. nothing at all nationwide. nothing burger.
- 4yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
Originally posted by @Duane Alexander:
I just hope this causes them to adjust their "zestimates" to be more realistic instead of inflated to entice homeowners to sell to zillow.
Exactly
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes4y
Originally posted by @Jim K.:
Originally posted by @Bill F.:
Bill, I think we can see how this is going to go from a technical perspective very easily.
It is highly, highly unlikely that the housing stock the Zillow algorithms targeted is rich in SF that would make high-quality SF rentals, the kind of modest, understated, well-built places with a really sound traditional design and reasonable building quality that bear up under years of low-maintenance operations under heavy rental usage.
So they're going to shuffle off a lot of "little boxes made of ticky-tacky" onto these institutional buyers, who are going to hire professional property managers who are not particularly interested in rigorously controlling maintenance costs over the long haul and not at all incentivized to carry out high-quality long-term preventive maintenance schemes, or to treat tenants well.
There's an awful lot of wiggle room in that pattern there for the small operators coming up in single-family to build their portfolios and screen out the best tenants. There will be more rental supply for a while but it will not be particularly cheap-to-run or soundly-run rental supply. Not sure this will be a bad development for small landlords like me.
But as for a real estate crash, no, I think you're absolutely right. This is not the beginning of the end. I am increasingly convinced that the end of this real estate up cycle will come when Biden really does something dramatically stupid to increase housing supply, a kind of well-meaning academic bonehead lefty move to equal GW Bush's well-meaning academic bonehead righty moves to open up the housing market by deregulating lending to subprime buyers, Biden will absolutely have to promise some totally daft housing lunacies to his base in his bid to get re-elected in 2024, that's for sure, while anyone who comes up on the right will just have to point to the affordable housing shortage as a failure of federal policy and not actually make any firm promises about how to fix it.
I totally agree with you Jim that this won't impact small landlords who self manage and rehab like yourself. You have a long term focus and at the end of the day, that is a tremendous advantage.
When it comes to the housing stock issue, I don't know if that will play as large a role since in most of the cities listed there isn't tremendous variability in the age of the stock. Dallas isn't like Philly in the regard that Dallas doesn't have a ton of 100 year old homes. Things from the '80s get torn down a rebuilt. From what I have seen, it is a pretty level playing field in terms of building quality; mostly like you described, track homes built by the 100's.
Where the small landlords will get hurt in these cities is in the short run. These bigger players have such a lower cost of capital via agency debt than you or I do, so they can get the same cash flow with lower net income. Plus the fact that they don't care about comps one bit. All that matters is occupancy across their portfolio. This will lead them to pull out the multi-family bag of tricks, free rent months rent, lowers security deposits, free HBO... In the short term this will draw applicants to them and increase the turnover time and thus costs, for small landlords.
Those that can't keep expenses under control, just liked you talked about, or that have followed the max leverage, get to 35 doors as fast as I can so I can get my freedom number $200/door like the podcast told me spreadsheet warriors, will feel this the most.
Interesting point about the housing policy, hopefully that doesn't come true since we saw how it turned out last time, but I believe you are 100% right that it is certainly on the table.
- Realtor · Jacksonville, FL · Member since 2019 · 95 posts · 87 votes4y
@Amey Phatale
It is all market dependent but as a whole you still need to look at some of the current positive catalysts. First, there is still a shortage of affordable housing. Second, interest rates still very low. Next is inflation is picking up and people purchase REITS/physical real estate as an inflation hedge. And for some markets, like I am in Jacksonville FL, this market has had a lot of momentum but continues to because of the amount of people moving here still because of COVID. So the demand is here and the supply is very limited. Those simple economics show a market that still is trending the right way. I believe in a year or two things will start evening out but no major signs of crashing at least here. Also, I had talked to multiple hedge funds who survived 2008 and mentioned similar points. But you never know of course but can only follow the trends and the real data. I never looked at Zillow as reliable with their estimates and this event has shown their lack of competence. But I would also ask yourself if you are a long term investor, if you buy a deal right in today’s market then in the long run you are set for success. You can make money in an appreciating, declining, or more stable market. I hope this helps!
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes4y
Originally posted by @Bill F.:
Originally posted by @Jim K.:
Originally posted by @Bill F.:
Bill, I think we can see how this is going to go from a technical perspective very easily.
It is highly, highly unlikely that the housing stock the Zillow algorithms targeted is rich in SF that would make high-quality SF rentals, the kind of modest, understated, well-built places with a really sound traditional design and reasonable building quality that bear up under years of low-maintenance operations under heavy rental usage.
So they're going to shuffle off a lot of "little boxes made of ticky-tacky" onto these institutional buyers, who are going to hire professional property managers who are not particularly interested in rigorously controlling maintenance costs over the long haul and not at all incentivized to carry out high-quality long-term preventive maintenance schemes, or to treat tenants well.
There's an awful lot of wiggle room in that pattern there for the small operators coming up in single-family to build their portfolios and screen out the best tenants. There will be more rental supply for a while but it will not be particularly cheap-to-run or soundly-run rental supply. Not sure this will be a bad development for small landlords like me.
But as for a real estate crash, no, I think you're absolutely right. This is not the beginning of the end. I am increasingly convinced that the end of this real estate up cycle will come when Biden really does something dramatically stupid to increase housing supply, a kind of well-meaning academic bonehead lefty move to equal GW Bush's well-meaning academic bonehead righty moves to open up the housing market by deregulating lending to subprime buyers, Biden will absolutely have to promise some totally daft housing lunacies to his base in his bid to get re-elected in 2024, that's for sure, while anyone who comes up on the right will just have to point to the affordable housing shortage as a failure of federal policy and not actually make any firm promises about how to fix it.
I totally agree with you Jim that this won't impact small landlords who self manage and rehab like yourself. You have a long term focus and at the end of the day, that is a tremendous advantage.
When it comes to the housing stock issue, I don't know if that will play as large a role since in most of the cities listed there isn't tremendous variability in the age of the stock. Dallas isn't like Philly in the regard that Dallas doesn't have a ton of 100 year old homes. Things from the '80s get torn down a rebuilt. From what I have seen, it is a pretty level playing field in terms of building quality; mostly like you described, track homes built by the 100's.
Where the small landlords will get hurt in these cities is in the short run. These bigger players have such a lower cost of capital via agency debt than you or I do, so they can get the same cash flow with lower net income. Plus the fact that they don't care about comps one bit. All that matters is occupancy across their portfolio. This will lead them to pull out the multi-family bag of tricks, free rent months rent, lowers security deposits, free HBO... In the short term this will draw applicants to them and increase the turnover time and thus costs, for small landlords.
Those that can't keep expenses under control, just liked you talked about, or that have followed the max leverage, get to 35 doors as fast as I can so I can get my freedom number $200/door like the podcast told me spreadsheet warriors, will feel this the most.
Interesting point about the housing policy, hopefully that doesn't come true since we saw how it turned out last time, but I believe you are 100% right that it is certainly on the table.
As always, something to think about. Thanks, Bill.
- Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes4y
@Amey Phatale generally my take is that Zillow f’d up.
There is still a shortage of low to mid income housing in most markets. So unless a ton of new inventory magically appears, is don’t see any type of real estate crash coming.
Now the stock market just doesn’t make sense to me right now. I think there is definitely some sort of crash or correction coming our way “soon”. When soon is I have no clue. Could be this week, could be in 10 years.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes4y
@Amey Phatale Zillow Shmillow. About as good as a degree from Trump University.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
I’m actually more cynical then you on this one, that’s saying something! Biden and the other politicians will run up the deficit until we have positive GDP for the rest of history. It will be government spending and and the quality of life will plummet in the US. But Wall Street, real estate investors and the bankers will love it. Since hey lets face it the most important thing in every humans life should be the performance of their portfolio.
- Lender · United States · Member since 2020 · 1k+ posts · 499 votes4y
It’s clear at this point Zillow is nothing more than a real estate listing site and promotional site for realtors and loan officers.
Zillow bet so much on their pricing algorithm and it costs them over $500 million in losses.
A real estate “crash” is due any day... based on articles dating back to 2017, nearly 5 years ago, and here we are.
People who were involved and suffered through 2008 are often fearful of a repeat. - Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes4y
@Amey Phatale Two totally different issues in my opinion.
Why do you think the market will crash? Are people losing jobs and unable to find new ones?
Are banks and lenders tightening lending requirements?
Is there less home formation?
It's been a while since I've seen the stats, but the last time I saw in DFW something like 1/3 of the purchases were for cash....so even a small blip in the market won't cause all these cash buyers to sell. Rents are still going up, so if anything cash buyers will probably buy more.
The stock market is frothy, so plenty of people taking money out of the market, and putting it in real estate. Tons and tons and tons of money on the sidelines looking for real estate deals.
Many people think we are on the verge of real inflation? What about you? Do you think we continue to see wages go up? Do you think we will still have supply chain issues for the next 1-2-3 years? Do you think we have energy issues for the next 1-2-3 years or more as the economies all over the world open up.
During times of inflation, many investors try to move their money to hard assets like real estate for an inflation hedge.
Builders at least in my area seem to have insatiable demand.....some won't sign contracts, because build jobs are so far behind. Some have signed, but not started construction for a year. Seems to be a line of people out the door and on their waiting list ready to build.
What signs are you seeing that there will be a crash?
Zillow....a whole other story. Almost everyone I know thought they were overpaying for homes. Seems like they were trying to buy market share. Not sure why. Flipping houses has traditionally had some pretty common numbers. Great investors bought at 70% of ARV minus repairs. Those numbers seem to fix almost all mistakes. We saw them buy plenty of houses at 5-10% over ARV with no repairs included....they had some extra fluff built in probably with commissions and maybe some title company tricks, maybe they got some mortgage fees, but my guess is even if they get lucky on all of it, the break even. I also say look at where they were buying...for a little while everyone looks like a genius when you buy in hot markets and prices are going up 1-2% a month, but when that slows down, or time on market goes from 7days to 30 days, or your labor supply dries up due to Covid, or you just screw up on one house that has a bad roof or a bad foundation or bad plumbing pipes or all the pipes freeze in Texas because you failed to have on the heat in February and your insurance doesn't cover that because it is vacant and you were negligent, then you may have to sell 10 at really great prices to make up for the one bad one. Flipping is simple until something hits the fan, then it isn't. Smaller operations, may be nimble and bargain hard and get things done quickly, but tough to do when you own 8000 houses. Their numbers were just wrong and many of us in the business kept shaking our heads, wondering why the venture capital and hedge funds weren't better stewards of their investors capital.
- 4yHersh ShahBusiness MemberRealtor · Atlanta, GA · Member since 2016 · 117 posts · 78 votes
@Amey Phatale
Their stock price relates to their business which took a massive L in something they wanted to gravitate their business model to.
Beyond that, the industry is healthy and these homes will be swallowed up by the market based on simple supply and demand.
Specifically in my market, there are several other major players that want to buy 500+ homes/year. Z is selling 7k across the country, but even if they were selling them in this market, there are plenty of big whales that can buy majority of them if not all of them.
Now Z can go back to selling overpriced buyer leads to agents which is what caused them to grow in the first place.
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