I’m sure you’ve seen the many news reports about Zillow’s iBuyer failure in 2021. What are the lessons to learn and market impacts? There are several take-aways of note. To start let’s visit some of the major news stories:
- Why Zillow’s Home Flipping Business Went Belly-Up; WSJ.com
- Zillow sells 2,000 Homes in Dismantling Its House-Flipping Business; WSJ.com
- Zillow Seeks to Sell 7,000 Homes for 2.8 Billion After Flipping Halt; Bloomberg.com
Zillow and its chief iBuying competitors, Opendoor Technologies Inc. and Offerpad Solutions Inc., often sell homes to single-family landlords in the normal course of business. Investors bought roughly 9% of all homes Zillow sold in the first quarter of 2021, Bloomberg previously reported.Bloomberg.com
I have to admit, when I first heard the news I felt a little “snarky” thinking “they needed a good agent.” However, with more in-depth analysis it’s clear the failure of AI in this venture does not mean we should discount Artificial Intelligence in real estate trends going into 2022.
Two major outcomes we must review;
Dangers of Flipping in a Shifting Market
As much as we can get caught into the sophistication of AI, Zillow’s iBuyer failure aligns with “old school” advise about the risks of flipping homes in a shifting market. When markets shift, house flippers and developers usually get caught first. ARV (after renovation values) estimated at the start of a project are dated to start with, and as markets shift the profit margin can quickly disappear. I’ve advised several new investors who based their plans on past neighborhood shifts to be very cautious about future pricing trends based on dated information.
Hedge Funds Buying Housing Portfolios
New York based investment firm, Pretnium Partners, purchased the first 2,000 homes that Zillow canceled in 20 markets with plans to rent them. This move follows a trend of Wall Street investments in portfolios of properties I’ve learned about through discussions on Clubhouse.
According to industry insiders, we should not discount the use of AI on an institutional level because of Zillow’s failure.
In the past 6 months pre-foreclosure properties been have purchased as portfolios for investment funds based on rental projections. This confuses foreclosure data as these homes won’t show in today’s market as foreclosures. They’re purchased directly from lien holders prior to hitting the market.
We can dig deep on this topic and it’s impact on housing affordability, but for this discussion it’s another use of AI with Wall Street investments, and their impact on our local housing markets. For more insights;
- Who’s outbidding you by tens of thousands of dollars? A hedge fund; NBCNews.com
- Will Hedge Funds Ultimately Own ALL Our Homes; Making us a Nation of Renters? Investors are buying 1 in 4 homes in America
These are examples of complex dynamics that make navigating today’s real estate market a challenge. Let’s talk and go over your personal goals, then strategize on a plan for success in 2022.