While I believe San Diego is a fantastic long-term investment, I would not be surprised to see a short-term adjustment in the next couple of years.
That could explain why Zillow has never made a profit in their homebuying business; Zillow sold 66 percent of their homes at a loss that averaged 4.5 percent.
They missed the impact of seasonality; missed the fact that the frenzy of buyers creating instant sales would end, and they failed to discount purchase prices by sufficient margins for quick resales.
They tried to accurately predict the cost of buying and selling homes in this current market utilizing aggressive algorithms and ended up overpaying for homes.
Real estate markets have several known problems, such as home construction not keeping pace with demand, but they do not offer a clear explanation for Zillow’s decision.
Many aspects of home valuation can be quantified, such as number of bedrooms and bathrooms. However, the reality is that the choice to buy a home is often based on subjective human decisions such as a view or personal preferences.
YES: Zillow’s house-flipping shutdown in part probably indicates the firm’s view of rising risks that prices might decline or decelerate more quickly on its large outstanding inventory.
There are more signs the housing market will continue strong through 2022 at least.
YES: After racking up more than $1 billion in losses over the past 3.5 years, Zillow closing down their iBuyer business has significant ramifications for the real estate industry.
If the key to their success is the renovation of the houses then the shortage of labor and materials for the renovation may make holding the properties too expensive.
Some markets are now immersed in a long peak pricing spectrum, and there are likely to be corrections in the coming months.
Some people have accumulated a COVID “piggy bank,” as they continued to earn money but had no place to spend it.
Values are not going up as rapidly as they were and will peak or correct a bit at some point.
The people who sold to Zillow were the ones who knew that Zillow was offering them more than they could get from a live buyer.