Zillow is out of the home buying game. What comes next?

[anni]

Couldn't find a thread yet but since it's been dominating my news feeds, I wanted to start a discussion here.

Here's the summary from CNBC...

Zillow shares have lost two-thirds of their value since February as the company's new home-buying business turned into a money-losing albatross.

Zillow said in its third-quarter earnings report on Tuesday that it was exiting the Offers business after the company reported a pre-tax loss of $422 million in its homes segment.

CEO Rich Barton told analysts that Offers was ultimately "too risky, too volatile to our earnings and operations," and had "too low of a return on equity opportunity."

https://www.cnbc.com/amp/2021/11/03/zillow-stock-plunges-24percent-after-company-exits-home-buying-business.html

They're also planning to lay off 25% of their staff as a result of the program shutting down.

What do you think will happen to the houses? Flipped to other mega corps for rentals? Sold back to local owners? I think folks on Twitter and Reddit are overly optimistic that this means more affordable opportunities in hot markets. But maybe.

This program has rubbed me the wrong way since I first heard of it so I'm personally happy to see it fail regardless of whether prices fall or not in affected areas. It felt sort of illegal, if not dystopian. But I'm sure other corporate interests are already using their own algorithms for SFH purchases that will continue to outcompete ordinary buyers looking for a good deal on their shelter.

[less4success]

… how did they lose money selling houses in a skyrocketing market?

[MrGreen]

@less4success Zillow was outbidding individual homebuyers by overpaying for homes, expecting the value of the house to continue rising while they fixed it up, which would then turn into a profit when they resell. The problem is that prices have plateaued and in some markets are even starting to drop a hair. The weird thing here is that Zillow committed an elementary misstep, expecting the market to continue appreciating at unsustainable rates. I cannot for the life of me figure out how management thought this was a good idea. Greed is the only logical conclusion I can come to.

[Steeze]

I watched a video once that asserted Zillow was buying homes in clusters, often overpaying, in an effort to game the comps system and drive up the values of homes they already owned. Essentially they were aiming to control enough of an area to fix the market. The commentator had a fairly convincing trail of evidence, but who knows.

I watched an interview with the CEO today, he said he would be selling the homes locally and to corporate buyers, which was always the plan.

[Paper Chaser]

@less4success Zillow was outbidding individual homebuyers by overpaying for homes, expecting the value of the house to continue rising while they fixed it up, which would then turn into a profit when they resell. The problem is that prices have plateaued and in some markets are even starting to drop a hair. The weird thing here is that Zillow committed an elementary misstep, expecting the market to continue appreciating at unsustainable rates. I cannot for the life of me figure out how management thought this was a good idea. Greed is the only logical conclusion I can come to.

Material and labor prices shot up in recent months too, making renos more expensive

[Paper Chaser]

What do you think will happen to the houses? Flipped to other mega corps for rentals? Sold back to local owners? I think folks on Twitter and Reddit are overly optimistic that this means more affordable opportunities in hot markets. But maybe.

They'll initially try to sell the houses to "institutional investors" hoping that there's a greater fool out there, or to simply be rid of them in a quick easy step. If they're losing money on the houses when selling on the open market, that's probably their last resort. It would be much more hassle, take longer, and potentially cost them the most per property.

Zillow closing their home buying business should reduce competition among home buyers. If the houses hit the market, they'll have a small impact on supply. Both would help consumers. But there's still a massive housing shortage. Freddie Mac estimates the US is short about 3.8 million housing units. Zillow's 7000 homes hitting the open market doesn't make a dent in that.



You've still got historically low unemployment, so lots of people have regular income.
You've still got historically low interest rates, so those people can have lower monthly payments, or more expensive homes for the same mortgage payment.
You've still got current homeowners sitting on mountains of equity that they can use to help fund more expensive home purchases.
You've still got investors that have seen insane returns in housing and stocks in recent years that have plenty of capital to spend.

All of these things tell me that prices aren't going to drop in any meaningful way. They may slow their rate of increase, or flatten out completely but I don't think many properties are going to get any cheaper than they currently are. The days of frothy bidding wars to pay well over asking price may be numbered though.

[clifp]

… how did they lose money selling houses in a skyrocketing market?

One of the things, that I wish someone told me in a beginner's guide to buying real estate, is seriously thinking about setting up an LLC and buy the real estate through the LLC.  One of the less obvious reasons you should do this to avoid the hundreds, of phone calls, text, emails, and even snail mail letters offering to "buy your home for cash fast."

Now, I know it is seems hard to believe.  But it is actually possible to buy real estate at 30%,50%, and even 70% discount to the fair market.  I honestly didn't think this happen, until I started getting involved in flip funding, with a friend, who has been doing flips full time for the last 6 or 7 years.  I've watched houses in the Kansas City area get bought for $25K sold to wholesaler for $40K, spend a month  and $10k fixing it and then sold for $90K, and this all happens within 3 months.  This spring and summer I was getting about 10 offers/per week on my 3 rentals, my own house.

For curiosity, I will entertain an offer about every quarter," from the buy your house for cash fast' crowd.  The offers are always between $.30 and $.60 on the $ and laugh and tell when it is close to the Zillow estimate we can talk.  That was until the last two month when all three of my Vegas properties got offers from Zillow to buy at a price that was within 5% of the Zillow estimate and fair market value.  I followed up and was astonished but Zillow was pretty much prepared to buy my houses sight unseen at a fair price.  The only way to reliably make money flipping house is to buy at discount, but Zillow was overpaying.

[Another Reader]

… how did they lose money selling houses in a skyrocketing market?

One of the things, that I wish someone told me in a beginner's guide to buying real estate, is seriously thinking about setting up an LLC and buy the real estate through the LLC.  One of the less obvious reasons you should do this to avoid the hundreds, of phone calls, text, emails, and even snail mail letters offering to "buy your home for cash fast."

Now, I know it is seems hard to believe.  But it is actually possible to buy real estate at 30%,50%, and even 70% discount to the fair market.  I honestly didn't think this happen, until I started getting involved in flip funding, with a friend, who has been doing flips full time for the last 6 or 7 years.  I've watched houses in the Kansas City area get bought for $25K sold to wholesaler for $40K, spend a month  and $10k fixing it and then sold for $90K, and this all happens within 3 months.  This spring and summer I was getting about 10 offers/per week on my 3 rentals, my own house.

For curiosity, I will entertain an offer about every quarter," from the buy your house for cash fast' crowd.  The offers are always between $.30 and $.60 on the $ and laugh and tell when it is close to the Zillow estimate we can talk.  That was until the last two month when all three of my Vegas properties got offers from Zillow to buy at a price that was within 5% of the Zillow estimate and fair market value.  I followed up and was astonished but Zillow was pretty much prepared to buy my houses sight unseen at a fair price.  The only way to reliably make money flipping house is to buy at discount, but Zillow was overpaying.

The only strategy I can think of is that the Zillow people thought they could assemble portfolios of ready to rent houses and sell them at a premium to the big rental operators.

I got a number of offers targeting my smaller 3/2/2's at market value from agents representing smaller rental operators.  Those offers have now disappeared.  I still get numerous phone calls and pieces of mail, but the volume has decreased dramatically in the last 30 days.

[aasdfadsf]

I don't get this, but for some reason large corporations have never been able to run local SFHs anywhere. I don't know what the economic explanation is, but they just can't do it. There were a lot of stories after the housing bust in '08 when a bunch tried to get in on it, but none of them seemed to have worked out in the long run. It would seem that they should be able to do it -- centralized management has some advantages! But every effort to Wal-Martize the individual housing market keeps failing. It turns out that individual housing is, and perhaps will always be, something that is run by mom-n-pop operations. I'm not complaining about this -- it's good for us! But why? Someone must have some theory and I'm itching to figure it out.

[economista]

When I was house hunting over the summer there was a house owned by Zillow on the market and it was terrible. It was our ideal layout and in the neighborhood we wanted to be in but it was in terrible shape! All of the rooms in the basement had been finished by previous owner’s DIY and they did a really terrible job and it had been used as a rental and the kitchen cabinets were beat to hell. It was listed at the very top of the comps, higher than other houses with the same layout that had been redone top to bottom beautifully. It sat on the market for months while we were looking and every 30 days they would drop the list price by $5k, but they were still listed $100k too high.

Recently in my buy nothing group I saw someone posting old broken and a stair railing and it was the Zillow house! Someone finally bought it. I haven’t gone back to see how much they got it for, but they are obviously remodeling it.

[DadJokes]

@less4success Zillow was outbidding individual homebuyers by overpaying for homes, expecting the value of the house to continue rising while they fixed it up, which would then turn into a profit when they resell. The problem is that prices have plateaued and in some markets are even starting to drop a hair. The weird thing here is that Zillow committed an elementary misstep, expecting the market to continue appreciating at unsustainable rates. I cannot for the life of me figure out how management thought this was a good idea. Greed is the only logical conclusion I can come to.

Even in the liquid hot market where I live, Zillow bought a house from a friend and then sold it for a loss. I don't know how they could have mis-calculated so terribly that they could lose money in the local market here.

[Zamboni]

I have a hypothesis about what happened with Zillow. They started making offers on houses in limited markets in mid-2018. But they were never the only player in the "instant closing" game. There was OpenDoor and local cash "fast close" buyers to contend with, at a minimum. My area also had a very large volume real estate agent who was advertising heavily on billboards and the radio that he was in the "instant offer" business. So Zillow went into this pretty competitive environment with a tactical flaw: provide a high offer sight-unseen using their computer modeling, then lower it dramatically upon inspection even when a home had all systems functioning. It backfired, and so then they changed their offer strategy too fast, and now that has backfired.

Here is what happened when they made an offer on my home in mid-2019. The initial offer in the mail from Zillow was $300K. Okay, I'd been watching my local market closely for years and local realtors were telling me to list it at $290-$299K, so $300K with a fast close sounded good. I told Zillow come on by and do your inspection thing. My home had been kept up, had brand new hardiplank siding (less than two years), new roof (less than two years), new water heater, new appliances, neutral colors, light tones in the kitchen, trimmed landscaping, etc. The guy spent about an hour looking around my home, and then I get this high pressure sales phone call saying Zillow now estimated they were going to make $60K in "repairs" (things like replacing my perfectly fine white laminate counter tops, redoing ALL of the plumbing in the home even though there were no active leaks, etc.) So, the "revised" offer from Zillow is $240K. Totally absurd, but also totally high pressure. Umm, no, thanks. I'm not a distressed buyer, and this house is actually in really good shape.

Meanwhile, OpenDoor recognized they had a big new competitor and completely changed their strategy. The guy from OpenDoor came by that same week and said "We used to look for smaller things to repair or replace, but the strategy has changed and so now we're just here to measure, make sure your reports are accurate, and confirm that this isn't a dilapidated hoarder situation. I have been told that my job is to find nothing wrong unless there is REALLY something big wrong." Their initial offer was $283K and their "revised" offer after inspection was $283K. I was even able to get them to lower their "commission" bullshit by one percent due to the relatively new siding and roof. And they could close in 2 weeks, which meant I could turn around and close on the new home I wanted to buy without having to pull any cash out of my stash.

Obviously I sold to OpenDoor. They took the commission cut, did nothing to repair or improve the home, relisted it at $300K, and then sold it for $290K about 4 months later. As far as I'm concerned that was a win-win. They made a little money, and I made a fair sale but didn't have to deal with time on the market or flaky individual buyers and their laundry lists of issues.

I saw other "for sale" signs from OpenDoor pop up in yards here and there. I'm going to guess Zillow was not successfully purchasing anything in my neighborhood that first year. They were outwitted and outplayed by OpenDoor where I live, because OpenDoor had had boots on the ground for much longer and knew what they were doing in terms of the local market. So did Zillow then radically change their strategy in an effort to outbid places like OpenDoor? Sounds like it . . . and it backfired.

[aasdfadsf]

I'd be surprised if it was worth it for OpenDoor to clear all of $7000. It seems like carrying costs and closing costs would have easily eaten that up. Maybe they just do it for the commissions and are content to break even on the price.

The explanation for why Zillow failed makes good sense. I'd be pretty annoyed too if they pulled a bait-and-switch on me like that too.

[maizefolk]

I don't get this, but for some reason large corporations have never been able to run local SFHs anywhere. I don't know what the economic explanation is, but they just can't do it. There were a lot of stories after the housing bust in '08 when a bunch tried to get in on it, but none of them seemed to have worked out in the long run. It would seem that they should be able to do it -- centralized management has some advantages! But every effort to Wal-Martize the individual housing market keeps failing. It turns out that individual housing is, and perhaps will always be, something that is run by mom-n-pop operations. I'm not complaining about this -- it's good for us! But why? Someone must have some theory and I'm itching to figure it out.

I have two (not mutually exclusive) potential models:

1) Large companies don't have access to implicitly government subsidized long term fixed rate financing available to small investors who still qualify for 30 year fixed rate mortgages.

2) A lot of mom and pop landlords may actually lose money, especially once they account for the value of their own unpaid labor. This would make SFH rentals act bit like the one-off restaurant sector (e.g. not chains) which runs at a loss in many major cities, yet the business model persists because new people keep using their savings to open up new restaurants which run at a loss for months or years before closing.

Both of these would make it really hard for big business to turn a profit when competing with individual landlords in the SFH rental sector.

[waltworks]

Most of the mom and pop landlords I know personally lose money (especially if you account for their time) but if they retire/sell after 20 or 30 years the forced savings account aspect of RE will (kinda) bail them out.

I mean, people will buy all sorts of awful stuff and rent it and spend weeks every year fixing problems and think they're doing great, because they have no idea how to track expenses and figure 8 hours of painting is "free" if they do it themselves.

-W

[PMJL34]

I agree with Maize and Walt. I hope people are just really that bad at accounting and that there is really no profits being made and more importantly, that zillow/blackrock/opendoor all fail lol.

I've helped so many friends and family with rentals and I have yet to see someone who is truly making a profit unless they bought 30+ years ago or during 2010-2012. Even then, they would have been much better off with index funds.

[maizefolk]

I've helped so many friends and family with rentals and I have yet to see someone who is truly making a profit unless they bought 30+ years ago or during 2010-2012. Even then, they would have been much better off with index funds.

I'm going to turn around and play devil's advocate back the other way now. The long term inflation adjusted CGAR of the stock market with dividends reinvested has been about 7%/year. In the 12.5 years since the great recession it's been more on the order 17%/year.

It's been an outstanding time to invest in index funds and every other investment is necessarily going to suffer by comparison looking back over the past decade or so.

[PMJL34]

Absolutely Maize. But my point is that, even at 7% per year, they would have been better off. It's hard to beat the market, especially if you have a decent sized nest egg.

[DadJokes]

Plenty of people have made great money in rental real estate. Paula Pant and the folks at the Bigger Pockets podcast come to mind. If you do your homework, it can be just just as or more profitable than index funds. And it's a great way to diversify out of equities a little.

Not everyone is willing to deal with rental real estate, and that's fine. I'm certainly one of those people. But to act like rental real estate can't be profitable is a bit absurd.

[Paper Chaser]

Plenty of people have made great money in rental real estate. Paula Pant and the folks at the Bigger Pockets podcast come to mind. If you do your homework, it can be just just as or more profitable than index funds. And it's a great way to diversify out of equities a little.

Not everyone is willing to deal with rental real estate, and that's fine. I'm certainly one of those people. But to act like rental real estate can't be profitable is a bit absurd.

I don't think anybody is saying that real estate can't be profitable, just that most people that think they're making money aren't doing as well as they think after accounting for lots of hidden costs like time, sweat equity, CapEx, vacancy, etc.
Pretty much anybody that bought RE between 2008 and 2013 has killed it. Lots of posters in this thread, Paula Pant, the BP guys all fit in this group. They bought low enough that the properties have had great cash flow and have gotten lucky with crazy appreciation on top of that. But increasing RE purchase prices and lagging rents have meant that it's only gotten harder and harder to find properties that have strong cash flow. That leaves a potential RE investor with little more than hopes for appreciation for their profit. That's why corporations buying investment RE recently has never made sense to me. They're buying at the top of the market, with margins narrower than they have been in a decade. Tons of the 'smart money' that bought when prices were lower have reaped their handsome profits and gotten out of the game completely.  In a lot of ways, RE has gone from being an investment with somewhat predictable returns to being speculation with unpredictable returns that the investor cannot control.

[PMJL34]

Well said Paper Chaser!

[roomtempmayo]

I don't get this, but for some reason large corporations have never been able to run local SFHs anywhere.

Everywhere I've lived, SFHs rent pretty close to the cost of the mortgage, insurance, tax, and maintenance.  Sometimes less.

The market appears to be set by people who kept the house they moved out of as a rental, and they're willing to rent more or less at cost to continue accruing equity.

I don't know that it's a matter of local versus national or corporate versus mom and pop, but more that there just isn't much profit to be make in renting SFHs.

[yachi]

I feel like there should be a market for a company that buys and resells houses, much like the market for used cars.  Advantages include a smother transition for current owners looking for their second house, and a ready place to "trade-in" your last house.  I don't know if it's the amount of capital required, the carrying costs, or the lack of prudent house purchasers that gets in the way.

[maizefolk]

I feel like there should be a market for a company that buys and resells houses, much like the market for used cars.  Advantages include a smother transition for current owners looking for their second house, and a ready place to "trade-in" your last house.  I don't know if it's the amount of capital required, the carrying costs, or the lack of prudent house purchasers that gets in the way.

I would be an enthusiastic customer of such a service.

My guess is that the main thing holding it back is high traditional transaction costs (real estate agent commission, closing costs) in the real estate market. If these eat up 6% of each transaction, a two transaction middleman is at a major disadvantage relative to private party sales which are a single transaction.

[Paper Chaser]

I feel like there should be a market for a company that buys and resells houses, much like the market for used cars.  Advantages include a smother transition for current owners looking for their second house, and a ready place to "trade-in" your last house.  I don't know if it's the amount of capital required, the carrying costs, or the lack of prudent house purchasers that gets in the way.

Isn't this essentially what the "We buy homes for cash" people are doing? Just like a car dealer, they offer an owner well below market value for the asset, and then turn around and sell it at market value. The only benefit to the owner is a speedy sale. I think the biggest difference is that used cars have very low transaction costs as Maize pointed out.

[clarkfan1979]

I don't get this, but for some reason large corporations have never been able to run local SFHs anywhere.

Everywhere I've lived, SFHs rent pretty close to the cost of the mortgage, insurance, tax, and maintenance.  Sometimes less.

The market appears to be set by people who kept the house they moved out of as a rental, and they're willing to rent more or less at cost to continue accruing equity.

I don't know that it's a matter of local versus national or corporate versus mom and pop, but more that there just isn't much profit to be make in renting SFHs.

This has basically been my strategy. Buy a fixer as a "slow flip" However, when it's time to move, I rent it out instead of selling. It is true, that there is time spent on repairs when it's a primary residence. However, after moving out, repairs are lower than normal because everything was fixed when it was a primary residence.

When I had 2 rentals, I probably averaged 50-100 hours/year to self-manage. When I added my 3rd rental, my hours went up to 150-200 hours. The 3rd one is more work, but the juice is worth the squeeze. Like many other people, I got a little bored during COVID-19 and made a few housing upgrades to my rentals. As a result, the last two years, I probably averaged 300-350 hours/year on my rentals. For 2022, my hours will go back down to 150-200 hours. My gross rents are 9300/month.

I paid an extended family member $300 to show a house for 4 hours on Sat & Sun (8 hours total). I spaced out the showings every 20 minutes and scheduled 22 people total. I have 40+ emails of people that were interested. After I filled the 22 slots, I took down the rental listing. It was probably about 15 hours of work communicating with applicants. After an applicant was chosen, it was another 3 hours of drafting the lease. I did this all remotely. I don't really do any repairs for this rental myself. I hire 95% of the repairs out.

My wife and I went from zero to 1.15 million in 10 years, while averaging a gross income of 90K/year (including rents). I don't think that's possible to achieve with 100% index funds. In May 2015, my wife switched from full-time work to part-time work and to make it work, we have been spending about $1,000/month of our rental income on lifestyle. If we re-invested 100% of our rents back into buying more real estate, our net worth would probably be closer to 1.5 million.
 

[maizefolk]

My wife and I went from zero to 1.15 million in 10 years, while averaging a gross income of 90K/year (including rents). I don't think that's possible to achieve with 100% index funds.

Over the past 10 years*, with a 90k income and a 50% savings rate in an S&P index fund a person's net worth would have grown from 0 to >$1M. If you're interested we could run the math to get a more precise number, but overall I think the returns are in the same rough ballpark as what you're seeing for real estate.

*An exceptional period for both stocks and real estate mind you.

[Hash Brown]

The work owners do on their rentals is generally off-hours work when they'd be sitting at home watching TV instead.  Owners have unrelated "real jobs" that pay health care and other benefits.  The big difference for Zillow, etc., is that they have to pay people to do this stuff during regular work hours, as a real job, paying for health insurance, vacation, etc. 

[clarkfan1979]

My wife and I went from zero to 1.15 million in 10 years, while averaging a gross income of 90K/year (including rents). I don't think that's possible to achieve with 100% index funds.

Over the past 10 years*, with a 90k income and a 50% savings rate in an S&P index fund a person's net worth would have grown from 0 to >$1M. If you're interested we could run the math to get a more precise number, but overall I think the returns are in the same rough ballpark as what you're seeing for real estate.

*An exceptional period for both stocks and real estate mind you.

I think it would be a good mental exercise. Two things to consider.

1) I think our savings rate has averaged around 25%
2) Over the past 10 years, our W2 income has been around 70K/year.

These are quick estimates. I can get some more accurate numbers sometime later.

Edit: Our W2 averaged 77K and our rents were 13K. There might be some error from year to year, but overall, it's pretty accurate.

                          W2                Rent Cash Flow

2011                   81                        2
2012                   84                        3
2013                   87                        3                                       
2014                   91                        3
2015                   75                       13
2016                   80                       15
2017                   71                       17
2018                   77                       19
2019                   61                       22
2020                   70                       21
2021                   70                       25

From August 2015 to October 2019, I was forced to contribute 8% into a pension (with no match). Because I left before being fully vested, they gave me a 2% return when they returned the money. During this same time the S & P 500 went from 1950 to 3100. I don't know how that's legal.

[clarkfan1979]

The work owners do on their rentals is generally off-hours work when they'd be sitting at home watching TV instead.  Owners have unrelated "real jobs" that pay health care and other benefits.  The big difference for Zillow, etc., is that they have to pay people to do this stuff during regular work hours, as a real job, paying for health insurance, vacation, etc.

Agreed.

I posted my numbers in case anyone wants to have fun with them. I'm not super interested in spending a large amount of time to get to a precise number. Maybe after my semester is over, I might get bored. I did run some rough numbers. I think I'm still ahead with the rentals. However, it was closer than I originally thought.

Edit: In May 2015, we got a big enough boost in our monthly rental income that my wife quit her full-time corporate job that she didn't like (46.5 hours/week). She has been working part-time and averaging 10 hours/week over the past 6.5 years. We have been spending part of that rental income to live (about $1,000/month). If we didn't have the rental income, she would not have been able to quit her corporate job.

Even right now, my take home pay is $3200/month and my wife is $1000/month. Our monthly spending is around $5400/month. We have a shortfall of $1200/month with our W2 income. Our current monthly cash flow from rentals is around $2700/month (after vacancy and repairs). As a result, we spend $1200/month of the rental cash flow and save and invest the remaining $1500/month.

In my mind, if we didn't have the rental income, my wife wouldn't have been able to quit her full-time job in May 2015, right? I think this makes the analysis more complicated. Our lives over the past 6.5 years would have been much different.

 

[AlanStache]

I would guess that they thought they could leverage the huge amounts of data they have to get a better estimate of what homes were really worth or how quickly they could be flipped.  I can sort of see this being a good first idea but have trouble seeing it standing up to any scrutiny given the large pool of local knowable everywhere in the country.  And the name recognition being a signal of trust and quality to individual buyers & sellers should have helped

Also I might be syndical enough to suggest that the program was maintained so that leadership could get large bonus for all the "anticipated" profits (I have no knowable or data to back this up).

[Hash Brown]

I posted my numbers in case anyone wants to have fun with them. I'm not super interested in spending a large amount of time to get to a precise number. Maybe after my semester is over, I might get bored. I did run some rough numbers. I think I'm still ahead with the rentals. However, it was closer than I originally thought.

I also think that there is a big unpredictable value in having at least two houses, since it gives not just you but your larger family some options when things change over time.  A relative can live in one of the houses (or another unit of a duplex), you can "downsize" to a small rental as you approach retirement, etc. 

Somebody needs to start a "downsizing" thread, where we recant people we know who downsize to a larger and even more impractical house. 

[PDXTabs]

@less4success Zillow was outbidding individual homebuyers by overpaying for homes, expecting the value of the house to continue rising while they fixed it up, which would then turn into a profit when they resell. The problem is that prices have plateaued and in some markets are even starting to drop a hair. The weird thing here is that Zillow committed an elementary misstep, expecting the market to continue appreciating at unsustainable rates. I cannot for the life of me figure out how management thought this was a good idea. Greed is the only logical conclusion I can come to.

Even in the liquid hot market where I live, Zillow bought a house from a friend and then sold it for a loss. I don't know how they could have mis-calculated so terribly that they could lose money in the local market here.

According to this WSJ article they weren't buying enough homes to keep up with Opendoor so they started deliberately paying more than their own algorithms and analysts said that they were worth, because... profit.