Zillow exits the iBuying business

2021 was a good time to own real estate — but a terrible one for real estate stocks.

Despite a hot 2021 real estate market, home flipping businesses performed terribly — with Zillow down 37%, Opendoor down 12%, and Offerpad down 29%.

What’s the big deal? Zillow transformed from a real estate marketing-focused business into iBuying (glorified mass home-flipping business). Selling a home? Zillow would make a cash purchase, renovate and sell — tech-enabled home flipping.

Or so it did. Yesterday, Zillow announced it was officially getting out of the iBuying game — saying:

• The model it used to buy and sell homes didn’t work as planned.
• Forecasting home prices was too unpredictable.

Zillow is already the leader in US real estate marketing with 67% market share and was looking at iBuying for more growth. But Zillow may have purchased too much, too fast:

• In October, Zillow paused buying houses due to labor and supply shortages — which impacted renovations.
• On Monday, Bloomberg reported that Zillow was looking to offload 7,000 homes worth $2.8B.

According to analyst Edward Yruma (via MW), 66% of homes bought by Zillow were below their purchase price.

Analysts predicted Zillow sold its homes either due to internal problems at Zillow’s iBuying operations or signs the housing market was slowing… But now we know the real reason.

Sending warnings: While Zillow’s exit benefits competitors, it also spells low confidence of profitability in the area — especially when home flipping is already such a low-margin business.

Competitors will also have to deal with potential interest rate increases coming in 2022 — threatening to slow home purchases.