The Real Reason Zillow Stopped Buying Homes & Why It’s Good For Housing

Zillow announced yesterday that they are no longer buying homes (through the end of the year).

It was all over the headlines, and numerous people sent me links to the announcement.

At first, I thought: “oh, no… I wonder if their algorithms are predicting a softer housing market…”

But then I started to see links like this one from The NREP: Zillow Can’t Keep Up…

Brian Stevens’ (from the NREP) mentions Zillow’s ostensible reason for bowing out (massive labor and supply constraints make renovations too difficult).

Stevens calls BS on that reason because Zillow is sitting on so much cash ($4.7 billion at the end of June), making the point that anyone can find labor and supplies if they are willing and able to pay.

Stevens then shares what he thinks is the “real reason” Zillow is no longer buying homes: Opendoor!

Opendoor is another publicly held iBuyer that is also extremely well-capitalized – making full-price offers en masse in many of Zillow’s markets.

And, Zillow does not want to compete with Opendoor when Opendoor is bidding so aggressively.

I should add that Opendoor’s full-price offers are so shocking because iBuyers, in general, have been notorious for getting sellers to accept low-ball offers – something I have blogged about a few times.

THIS BODES WELL FOR THE HOUSING MARKET!

I think Stevens is partially correct in that Opendoor is part of the reason Zillow is bowing out.

I think, however, that Zillow is also bowing out because they are competing with so many large real estate and hedge funds that are also buying single-family homes en masse.

This would seem to bode extremely well for the housing market overall – because all those huge firms would not be placing such enormous bets on housing if they did not think prices would continue to appreciate.

The reasoning above is also a nice refutation of my initial thought that Zillow’s algorithms are predicting a downturn.