Zillow gets out of house-flipping market

Zillow will stop buying and selling houses, saying home prices were too unpredictable for the company to continue doing it.

One economist said the move could be a sign of a coming slowdown in the red-hot U.S. real estate market.

In an earnings release to shareholders Tuesday, the online real estate portal said it lost $422 million in the last quarter in its Homes division, which includes Zillow Offers, the company’s iBuying arm that purchases and flips houses.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and [that] continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Zillow Group co-founder and CEO Rich Barton said in the release.

The news suggests that Zillow’s Zestimate tool, which is used to estimate potential home prices and which Zillow Offers uses as its metric for what to expect in home sales, might not be as accurate as touted.

Zillow currently has about 100 homes to sell in metro Orlando. In the release, the company said it would phase out Zillow Offers over the next several quarters, resulting in about a 25% reduction in staff.

A report from the company in September showed that the four largest iBuyers — Zillow Offers, Offerpad, RedfinNow and Opendoor — purchased 928 homes in the region over the first six months of 2021.

“What they’ve actually determined is that we’re at the peak of the buying cycle and no one wants to buy at the top of the cycle,” said Ken H. Johnson, a real estate economist with Florida Atlantic University.

Median home prices nationwide have slowed down in the past couple of months. In Orlando, the median home price fell in September, the first drop in 11 months, according to a report from the Orlando Regional Realtor Association.

Johnson says that if the cycle is leveling off, it won’t be as devastating nationally as the last housing crash in 2008, which started the Great Recession. However, he says the impact will vary by city.

A study by FAU shows the potential overvaluation of homes happening in the top 100 metros in the country. Boise, Idaho, is at the top, with homes selling for 81% more than they are worth based on historic trends.

Orlando is listed at 26.58% overpriced, with an average home price of $321,666 over an expected price of $254,117. Tampa is listed at 35.88% overpriced.

Johnson said cities with a less than 10% difference between average and expected price will likely fare better than others. “Cities [where homes] are extremely overpriced are not going to do as well,” he said.

While a flattening market might lead to construction slowdowns, Johnson said it is unlikely to be as bad as 2008, when cities such as Orlando were more than 70% overpriced at their peak. “Those cities that really got burned in the last crash, they’re the least overpriced,” he said. “It’s as if one group of cities learned and another didn’t.”

Johnson also said to count on continued growth in Florida to lessen the blow.

“That’s what heals all real estate problems is population growth,” he said.

As for whether Zillow’s announcement will have a cooling effect on the market in general, Johnson said real estate agents and investors are likely to view this as the end of the hot market.

“Zillow just has an underthe-hood view,” Johnson said. “They know something is wrong with the carburetor before the rest of us.”

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FILE Zillow has announced it will be ending Zillow Offers, eliminating the house-flipping side of its business.