Last week Zillow had to cut 25% of their personnel, leaving more than 6,400 unemployed, after their program where they were buying, renovating, and selling homes themselves, did not work.
They were relying solely on their “Zestimates”, the property values determined by their algorithm. But, as I mentioned in other newsletters and blog posts before, this algorithm was erroneous. There’s a lot more than average sales price to be considered when pricing a home. There are many factors and features that can benefit or affect property value, including “feeling”, which makes it virtually impossible to automate a process this complex.
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Rich Barton, Zillow Group’s co-founder and CEO, said in a statement.
Zillow is left with more than $360 MD in losses and over 6,000 homes that will end up selling under their purchased value.
So if Zillow is crashing, so does the real estate market?
No! Our most recent memory is the crash that we saw in 2008. That market crash was caused directly by the lending practices, with loans being given to people who couldn’t really afford them. That caused a huge wave of foreclosures and short sales.
As of October 2021, 3.4% of homeowners are in forbearance, which is the average number of homeowners we usually see struggling to make mortgage payments. In 2008 this number was more than 15%!
We currently have about 3,200 homes on the market in San Diego County. In this time of year, the average is around 9,000 homes on the market, so we basically have 1/3 of what we need to have a more balanced market between buyers and sellers. With this low inventory, if those 3.4% of homeowners were to sell their homes, the market would easily absorb those homes, which would help stabilize supply/demand and, in consequence, price.
So if you have been estimating the value of your home based on Zillow or other websites, know that this may be way off. It would be my pleasure to provide a complimentary report with a more accurate estimated value based on a thorough comparative market analysis. Just reach out to me and I will get this ready!
