By Frank May
Zillow Offers shook up the industry in several regions across the United States, but seemingly as quickly as the program took the country by storm, the real estate giant announced it would wind down program operations.
The program was part of what we know in the industry as instant buyers, or ‘iBuyers.’ These are real estate companies that are using technology to purchase good condition homes directly from sellers to turn around and sell them directly to buyers. The complete business model works around having high volume, low margins and charging fees to the seller.
In October, the company announced they would not buy any more homes under the Zillow Offers program through the end of 2021. But a press release issued just a few weeks later announced two major changes to the company: Zillow will get out of the home buying business altogether and Zillow will reduce their workforce by approximately 25 percent.
Is this a sign that the real estate market is shifting?
In their November 2 press release, Zillow cited unpredictability in Zillow Offers sales as part of why they are shuttering the program’s operations. Their third-quarter results included a write-down of inventory of approximately $304 million within the homes segment. Simply put, they purchased homes in Q3 and earlier at higher prices than they estimate they can sell them for in the future based on changing real estate trends.
While I can’t tell you exactly what the future of the industry holds, I can tell you that this was a massive shift in direction for one of the biggest iBuyer players in the game. Everyone in my industry is taking notes of Zillow’s announcements and continue to watch the market closely for other telling changes.
As of writing this article, Zillow Offers had eight percent of the active homes for sale in the 85383 market, with those homes averaging about 18 days on the market. iBuyers account for 27.7 percent of the active listings in our zip code.
What does a change like this mean for our community?
Inventory in the 85383 zip code rose from 120 homes on the market two months ago to just over 150 during the first week of November. But those numbers have already dipped back down to the mid-120s. It’s hard to tell how much of that was in response to Zillow’s announcement. Dropping home inventory is common during this time of year because many homeowners don’t want to list their homes during the holidays. January traditionally sees a rise in active home listings and seeing what those numbers are like then will help myself and other realtors in the area better understand the impact Zillow has had on our local housing market.
Does this mark the beginning of a crash in the real estate market?
While there may be some rocky moments in the market in the coming year, I don’t think we will see a market crash like we saw in 2008. And a large part of that is because of changes in how lenders handle new loans now versus how they handled them then.
Back in 2008, you could really buy a home you couldn’t afford if you had a high credit score. This was referred to as a ‘no-doc loan.’ The lending criteria has changed since then, ensuring that lenders are approving buyers for amounts they can afford. This, along with the increase in equity, means current homeowners are in a much better situation than they were back then.
iBuyers only make up one part of the changing industry, and I think it’s impossible to use the failure of Zillow Offers as the benchmark for exactly what is going to happen in the market. The best tool for buyers and sellers alike is information from industry professionals who understand what the numbers mean.
I watch inventory daily to help alert me to any change in the market and I have a list of clients who want to be informed of that so they can decide what they want to do. If you are interested in a weekly email showing inventory of our MLS and 85383, email me at Frank@MayTeam.com.
As always, if you have real estate questions for the area, call me at 623-203-1800. I am here to help UWS residents understand their options and find their perfect home.
Frank May grew up in the Valley, graduating from Northwest Christian School and NAU. He is a real estate agent with Keller Williams Realty and has been helping both buyers and sellers for 20 years. Frank May is also a Dave Ramsey Endorsed Local Provider.