Zillow, a popular online real estate marketplace, recently announced that it would stop buying homes through its Zillow Offers business since it has already reached buying capacity, according to Bloomberg.
During the second quarter of 2021, Zillow bought 3,800 homes.
The company’s announcement comes as there is record-low housing supply in the U.S., said a Motley Fool in a piece published by USA Today. With low supply, buyers have more competition for properties and prices have gone up. When the housing market crashed in 2008, it created the opposite environment – a glut of homes on the market – and prices dropped.
According to CNBC, financial advisors think “this could be the worst market for home buyers we’ve ever seen.”
At the end of last month, the average home price in the U.S.
was $377,000, according to Redfin, up 14 percent from the same month last year and 30 percent compared to September 2019.
Zillow Offers operates as an instant buyer. It offers instant cash to homeowners who sell to the company, makes minimal fixes to their homes and then immediately puts them on the market. The process results in slight profit margins, according to the Motley Fool.
This is the second time Zillow stopped purchasing homes since the start of the COVID-19 pandemic. It also paused purchases near the start of the pandemic, when there was uncertainty about the housing market. Other instant buyers or “iBuyers” such as Opendoor, Offerpad and Redfin stopped buying too.
However, the companies started up again when demand for residential properties increased. Now, Zillow is the only one that has paused its purchasing, the Motley Fool said.
While it uses algorithms to determine how much to pay for homes, Zillow has also had trouble finding staff to repair and inspect homes amid the current labor shortage, said the outlet. Another issue for the company this year was a viral TikTok video that accused it of market manipulation.
Zillow, Redfin and Wharton real estate professor Gilles Duranton refuted the video’s theory that Zillow could buy 30 houses in a neighborhood and then buy another for more money to increase overall prices by the time it sells the properties.
“If you could rig the residential housing market that easily, the Realtors would have done it long ago,” Duranton told MarketWatch.
Even so, the theory could hurt perception of the company, said the Motely Fool.
After the announcement Zillow’s shares also dropped 6.8 percent Monday. This year, its stock fell about 27 percent. Over the summer, the company also borrowed $450 million in a bond offering, which the Motley Fool said could leave it exposed to great risk in a volatile market.
In a Tuesday press release, Zillow said that there does seem to be some “modest calming” of the market, part of what it believes is a gradual return to normalcy.
“Buyers are finding slightly more selection, more price cuts and a bit more time to evaluate a home before it goes under contract,” said the company.
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