Zillow (NASDAQ:ZG)(NASDAQ:Z) recently surprised investors by getting out of the homebuying business. That was certainly a disappointment for the company’s shareholders, who had hoped it would be a new profit generator for the company. But there’s a bigger question: What implications — if any — does this change have for the overall real estate market? In this Fool Live video clip, recorded on Nov. 3, Fool.com contributor Matt Frankel, CFP®, discusses why he’s not too worried about its impact.
Matt Frankel: Boston Stu says, “Hey, Matt. Do you think the recent developments in Zillow abandoning iBuying will be a domino in ending the boom in housing prices? I wonder whether institutional buying played a role in exacerbating the housing shortage.”
No, I don’t think that the Zillow news will play a role in ending the boom in housing prices. iBuying as an entire industry is right about 1% of the entire housing market. Zillow was not the biggest player in that space. Opendoor (NASDAQ:OPEN) is by far the biggest player in that space. Zillow’s iBuying represents something to the effect of 0.2% of the entire housing market. They’ve already said that there’s institutional interest for the 7,000 or so homes they’re holding. So I don’t think that from a homeowner’s perspective, there’s any reason to be worried about the price of your house because of the Zillow news.
Having said that, I tweeted this morning that the Zillow news — them exiting iBuying, and the way they went about it — is probably the most disappointed I’ve ever been in a company that I’ve invested in, and I have had some pretty bad ones. It seems like an incompetence problem. Just last week, they put out a statement saying that they were going to suspend iBuying for the rest of the year due to overwhelming demand, and really spun it into a good thing. And then just a few days later, to completely upend your business model? They’ve been saying for years how iBuying is their growth engine.
So as an investor, I’m disappointed, but as a homeowner, I’m not worried that that’s going to set off any type of domino effect. There’s tons of institutional interest for homes, not just from iBuyers, but from a lot of real estate investment trusts. Invitation Homes (NYSE:INVH) is one that’s scooping up rental properties left and right. Opendoor put out a statement saying they’re still in business. There are a few others in the space that are doing very well. It just seems like a mismanagement in this one case. So from a homeowner’s perspective, I’m not very worried about it.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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