Zillow seeks to sell 7k homes for $2.8B after flipping halt - https://news.ycombinator.com/item?id=29081118 - Nov 2021 (521 comments)
It seems the current article adds significant new information, so we won't treat it as a follow-up (or dupe).
The algorithms are fooling themselves... Opendoor matches Zillow who matches Opendoor and that's how you get ever increasing offers.
Edit: oh, and now Zillow has that unit on the market, priced 14% lower than they paid for it, after 3 price cuts so far.
Edit 2: Phoenix/Scottsdale AZ market
I have read this article and the one before it and it sounds very much like some folks who fell in love with their own idea and got early feedback that it was "working", went all in and never checked to see if it was still working.
The lesson should have been, "When you perturb an emergent system, never assume that the current state is the new steady state."
The most interesting thing for me back when I was in college was a discussion on of the professors on feedback systems gave on LA's freeway systems. There are three major interconnected freeways, 405, 110, and 10 which at the time formed a triangle. Now there is the 105 which cuts off the tip so perhaps a smaller triangle. The professor shared a paper that tracked "brake waves" which were aggressive braking maneuvers that would "propagate" backwards on crowded freeways. The paper showed that at the right time of day, an aggressive braking on any of these three segments could result in your own braking wave to "lap around" and hit you again. Sort of a ringing of the system.
This sort of effect can be present in any system that isn't centrally organized but is instead a result of the interactions within the system. Buying and selling real estate is such a system, especially when you are a 'market maker' in that system.
There are a lot of papers on how HFT trading algorithms interfere (both constructively and destructively) with each other on wall street exchanges. Just interesting stuff in my opinion.
I found I could "break" the wave by letting a gap grow in front of me that would absorb the wave, and I wouldn't have to brake to a stop (and so my clutch would last longer).
It never occurred to me to write a paper about it :-)
If Zillow was the only iBuyer in a particular market, then that ceiling would likely have held, as all other non-zillow sales would still be operating under the loan approval constraint, and that would get reflected in the comps. But in a market with multiple ibuyers, none of which are capital constrained, it would make sense that they run up the prices against each other, past what the local homebuyers can afford.
Not sure how much that actually played a role here. But could be fun to do some back of the napkin math to see if that was the case in some of these markets.
In the more irrationally-hot markets, why assume that housing is even being purchased on a mortgage by your average home-buyer, rather than being purchased cash-in-hand by a private or corporate investor looking to park wealth they've already generated? (Even if that isn't the majority of houses in those markets, the sales like that that do happen would still have an impact on property values in the affected neighbourhoods.)
This is particularly pernicious because while there is a ton of housing, very few actual units in a city are ever on the market at once, making it easier for a well capitalized buyer to corner. My small city (pop ~1mil) only has 638 units for sale according to Zillow, which is pretty small all considered.
0 - What an unfortunate name we’ve settled on. Reminds me of the era where every cheap infomercial product had to ape Apple naming conventions.
- It's easy to get wrong. If you see a lot of opportunity all the time, it's your model that's wrong, not the market. Very trivial things can mess up your model, like not understanding what the input data means.
- Good trades are hard to get, common rule of thumb that your boss will tell you. Someone selling a house too cheaply? Either there's lots of other buyers or there's something about the house that you didn't think of.
I remember seeing an FX volatility model that almost never traded. It always said "the market is right, plus minus costs". Now and again it would ding and we'd carefully try to get it done in the market, you wouldn't do like Zillow and surprise all the sellers with a massive payday.
I also wrote an arbitrage bot from Bitstamp to MtGox once. I looked at it, didn't turn it on. Percentage wise it was a massive arb, but you couldn't see this in the raw numbers: credit risk on one of the legs. It just shows you that you still need to understand how things actually work. The model is only a calculator for quantifying opportunities that you understand.
This is perhaps the oddest thing about this story. Zillow must have run into several situations where they were paying more than what's sensible, and their staff must have reported this? Surely at the start of an algo buying program, you are vigilant to evidence that the program is wrong?
Counterparty risk, that is where the profit came from. I did the same thing, but went into it knowing what the exposure was and how to mitigate it: don't leave crypto in an exchange's hot wallet any longer than it takes to execute a trade and take profit only on exchanges that you could legally pursue in the event that they fail to execute a USD transfer. I also anticipated the debanking that followed... as far as I know I'm still blacklisted by one bank and two money transfer services. What I didn't anticipate was how many exchanges would get hacked and what that would look like to anybody who aggregated the transactions: I get cold called by actual financial institutions a few times a year, always looking to bulk up their dark pools - they somehow have it in their heads that I'm sitting on billions of dollars in BTC. They likely don't have enough of the puzzle to put together the fact that arbitrage doesn't take much when you only need three confirmation blocks - USD wire transfers were the bottleneck.
The issue with that arbitrage is that it was always one-sided. If you're arbing 2 equivalent markets (e.g. name trading on two different US exchanges), you'd expect to buy and sell on both markets in equal amounts, on average.
Bitstamp vs Mt Gox arb required traders to always buy BTC on Mt Gox and sell on Bitstamp (which is a strong indicator of cp risk). This makes inventory management very difficult - especially towards the end of Mt Gox where fund withdrawal times were of the order of months.
It was madness trying to code around people not thinking about their effects on the market and still turn a profit. Spoiler: we never did turn a profit on bozo powered listings, because at some point, it’s better to free the inventory space instead of waiting for the bozo to sell their items and let the price climb back up over the course of months or years.
I think about that a lot these days given the absolute oceans of capital sloshing around. I'm glad you got a piece of it! But this is a really weird way to redistribute excess wealth.
After a 14% cut, that would still be an absurd YoY increase (I think still the largest single year increase in a major metro in the US on record?).
I get that Zillow is losing 14% - but the market is not yet even back to normal appreciation - let alone "crashing".
A single padded first sale on a new development would be factored into offers. Classic wash trade.
I think the environmental crisis is already effecting the supply chain, I don't think we humans can see it yet. Are we Soviet Russia circa 1931, pretending like everything is going swimmingly while an enormous amount of us are about to starve?
Or Opendoor buys a house from themselves at way over market to trick Zillow into bankrupting itelf.
I saw quite a few houses that sold a few years prior for much lower prices. The disparity in estimated values and previous sales versus the list price was astronomical in most cases. The banks will happily give you a loan for whatever price so there is no check on the runaway prices except for your own personal knowledge of the historical market demand in an area.
it was purely about marketing driving up its own value via poorly considered metrics that invariably included positive reenforcement loops. eg, yahoo sells an ad for a company which sells ads on yahoo.
That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where you can't figure out how heavy the money bags that get dropped at your door will be. No, it's the bad kind of unpredictability where you can... lose money.
Reading between the lines, I conclude that Zillow sees a major shakeout in real estate on the horizon. They've already been hit with losses and see a lot more where that came from. In an effort to get ahead of whatever is approaching, the company is making an abrupt exit from the home flipping business.
Zillow was founded in 2006, as the last US housing market bubble was furiously inflating. It has seen a complete cycle of boom/bust. If anybody knows the US residential real estate sector, it is Zillow.
Zillow's iBuyer program hit the scene like a bull in a china shop. The real story is that they rushed into this space, had underdeveloped algorithms, overpaid for homes, and now the chickens are coming home to roost.
The reason you fire-sale that house at loss, is because you believe market value is unlikely to catch up.
Zillow hasn’t ever bought and sold homes (until now). That’s not their business.
But one day we hit a period with high volatility, lots of price crashing and spiking. The handheld systems and the servers that drove them were too laggy to keep up, so the monkeys would get taken advantage of both on the way up and on the way down. It was a very expensive lesson for the execs who put too much reliance on the tech and not enough on the expert humans.
It seems so wild to me that not only are people making the same mistake, but at a much, much larger scale. Half a billion dollars lost. So far!
> In April 2018, the company entered the fledgling on-demand home buying market (often referred to as ibuying) with a service called Zillow Offers. Prospective sellers in 11 markets (and growing) can go to the Zillow listing for their own home and ask for an offer. Within two days they’ll be sent a price derived from the Zestimate and other algorithms. Two local experts also provide input on each house, and if the seller likes the initial offer, a Zillow employee comes to inspect the property. (If a home is in poor condition the offer may be withdrawn or lowered.)
https://www.forbes.com/sites/samanthasharf/2019/07/01/rich-b...
It really calls into question their pricing algorithm, but I give them credit for actually trying to get into buying and selling properties.
The reason? No comparable homes that were recently sold AND available via MLS (private sales are ignored). The rules for appraisals breakdown when there is no liquidity. At least Zillow still considered private sales. The Zestimate was much more correct than the "expert" appraiser.
I don't think it's hyperbole to say Zillow has more data on residential real estate than any other company in the US.
If you could statistically trade houses people would have been doing it before we were born.
There's no way that OpenDoor doesn't follow them out the door here in the next couple of months. The business model is exactly the same. Anecdotally I haven't seen any reason to think OpenDoor is doing much better around here.
This coupled with the Fed tapering could cause the real estate market to cool pretty quickly.
If you're buying a home right now, make sure you're moving somewhere you're willing to live for a while and that you're not going to be in financial duress if your home loses 20% of its value.
The interesting question is around their bonds. They were basically convertible bonds which likely triggered, but now they have to pay back the cash. How much of a liquidity crisis will this introduce to the company?
The more interesting thing is that this business crisis won't be reflected in their last quarter 10-Q which should be coming out soon. I'm assuming this is going to be talked about in that earning call, so that will be an interesting one to listen to.
I think Opendoor's model is a lot better, but I guess we will have to wait to see if there are any repercussions to their business.
That's an odd way to say "I think you should probably consider renting right now" (which is absolutely what you should do if you think housing is likely to drop 20%).
Yes, they have to pay taxes. They have to maintain the property, and check on it against break-ins. There is a lot of cost to holding a property.
Hope those come from a different model than they used for buying.
There could also be the issue summed up as "thr market can stay irrational longer than I can stay solvent" issue. Even if your bet is right if you lack available capital for the temporal range and trajectory you can never capitalize on any theoretical gains. Even if you were right about Atari going bankrupt if you shorted at the very beginning of their existence in the late 70s and it took until the 90s for it to happen chances are you would default even though you were right.
lol, there is zero chance that Opendoor stops iBuying in the short term.
They are indeed much better at systematically valuing houses than Zillow. This was already the case 5 years ago when I worked there, and they have relentlessly improved on their core model since.
Selling or shorting Opendoor due to Zillow’s flaws is akin to shorting Google due to Yahoo’s inability to monetize search well or return long tail queries properly.
https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/FEDFUNDS
The Fed is (likely) going to announce bond purchase tapering this week, they’re currently buying $80B of US Treasuries and $40B of MBS every month. I believe the plan is to taper buying completely before raising rates.
The lack of QE could see the long end of the yield curve start to rise, which would push home prices down. If and when they start hiking the FF rate, look out!
The aftermath when they decide to unwind their positions will be far-reaching. Probably not another 2008, but it'll certainly depress valuations across the country. Like you said, if you're buying now, buy because you need a nice place to live, not because you intend to flip.
Only for flipping. The real value was buying during the pandemic and holding as housing supplies starts tightening up.
All models are wrong, some are useful.
Zillows were wrong, and apparently not useful.
Extrapolate that out a hundred thousand times and you get a sense of what they were trying to manage. How did they predict remodel costs? Pre-pandemic material costs and back-of-the-napkin labor estimates?
Flash forward eight or nine months, the housing market explodes and they triple down on their iBuys. My friend sells his home again, again with Zillow (I couldn’t believe he chose them either), and they offer him more than they did in Jan. 2020 (he sold sometime in 2021). Even with the extra mortgage payments he had to make, he still ended up making some money on the deal. Clearly, these companies were in over their heads, making bad decisions on algorithms and not doing real due diligence. The fact that they had an out 18 months ago and stopped doing this, only to triple down and lose $550m in a quarter is just staggering.
[1]: https://www.forbes.com/sites/brendarichardson/2020/03/28/zil...
They were for a long time the de facto neutral party everyone used to look at houses. Great. Then they got into doing contracts apparently, still OK.
Then they started competing against people and overbidding everyone, at the height of what appears to be the biggest housing boom of my lifetime. This was not only apparently financially dangerous, but an act that puts them in a bad light, publicity wise.
I cannot think of how anyone thought this was an OK idea.
It's crazy to think an institution like this would get FOMO, but I think what happened is in 2020 they saw housing prices go through the roof, thought to themselves "hey we have all of this data, we can make a quick buck here" and piled in only to now get burned.
So yes it was FOMO, but not based on quickly appreciating real estate.
I guess they assumed flipping houses would have more revenue and profits.
I imagine they felt the only way to prove how good their Zestimates are was to start acting on them.
And it's entirely possible that the problem is they have spent the last 10 years tweaking their Zestimate algos to make listing agents happy, increasing prices. Like, nobody sues you when your estimate is too high, but when you get it too low, get your legal counsel prepped: https://www.marketwatch.com/story/do-zillow-zestimates-misle...
Also they prioritize those listings now, with no way to filter them out, so when looking at houses I end up just scrolling past several pages to get to other listings that I actually want to see.
It's amazing that this whole scheme has made their traditional user experience worse at the same time.
Couldn't get the inspection done within first 9 days(inspection contingency is 10 days) of signing the contract and only got a response when we said we were going to cancel escrow. Got the inspection complete on the 10th day and there were so many issues with the house and repairs done that we felt it was not worth the negotiation to sort it out with Zillow and decided to back out. Not sure if this is a general trend but my agent was fed up and he said he will never deal with Zillow again. This was 3 weeks ago.
I tried using a discount broker back in the day, my experience was similar to yours.
https://fred.stlouisfed.org/series/MSPUS
The fed chart shows almost hockey stick growth in housing prices this year. How can the Zillow properties be underwater, did they just massively overpay up-front?
For comparison, since 2014 the US population has increased 4%.
Also, people aren't moving from somewhere to fill up your town, go on a random city subreddit and you'll see a different local mythology to explain the prices. It's happening everywhere though. There's literally no significant area that's seeing an exodus with decreasing prices. Not California, not libruhl lockdown states, not Texas, it's happening everywhere.
The reason is quite obvious. Just like bond values and yields are inversely correlated, mortgage rates and home values are inversely correlated. Here is a chart of the 30Y mortgage rate, it should explain everything.
1. The construction of new homes was limited in late 2019 early 2020. This was due to covid and labor shortages and supply lines being blocked.
2. Demand for homes rose to an all time high. The people in big cities said: "Why quarantine with nothing to do in my Manhattan apartment when I can buy a house and sell it when the pandemic is over. House prices always go up so I'll make money"
3. Zillow, banks, etc saw the fed start printing money which was going to lead us into an all-time high inflation rate. Their inflation hedge was simple: shift all liquids into long term stable solid assets. For most of human history this has been housing (single family and rental properties). Zillow specifically got a massive credit line via taking advantage of "zero risk" money from the fed via their bank.
4. Zillow + banks + the middle and upper class families start buying homes at a record high. This compounds with the lack of new supply.
5. Foreign speculators move in and see the increase in property value. The common wisdom of "prices only go up for homes" has encouraged them to invest in these properties. I know some people who have been doing this. Foreign speculators are concentrating on some limited markets (USA, Canada, and Australia).
Now that most of our liquid assets have shifted into properties any fluctuation in property value would have interesting implications so there will now be a large interest in keeping home prices high.
The core problem: properties are only worth what people are willing to pay for them. Regardless of what has been going on with inflation or how much money you have put into flipping it. If no one will buy the home for 200k over assessment then you have to lower the price. This is slowly causing a large reversal in the market. I've been seeing homes steadily creep back to what inflation would account for in price delta.
Do you have any data or more info about this? I think many of us young 'uns would just like some hope right about now.
https://fred.stlouisfed.org/series/MSACSR
Supply is going up.
That's the only possibility available as far as I can see. I recall seeing the housing stock they favored were all in the hottest US markets, so they're exposed to small fluctuations at the extreme end of the histogram. Otherwise the US median home price curve still looks like a boost phase ballistic missile track as of Q3 2021.
Zillow only got into this flipping game in 2018. They've never seen anything but rapid price growth. I will not be surprised when we learn the place was off the hook with buyers snapping up properties with no adults at the table.
There is always someone caught way over extended when markets move. This time one of them is named 'Zillow.' Expect a bunch of tedious 'insider' stories from Wired et al; wrecked hotel suites and orgies and $2e6 super cars. All the usual.
https://twitter.com/WallStCynic/status/1192663938720292864
Steve Eisman, the short seller who was Mark Baum in 'The Big Short' also predicted this in 2019.
https://www.cnbc.com/2019/08/08/big-short-investor-steve-eis...
Calling bullshit simply isn't worth the hassle these days (e.g. see Tesla and cryptocurrency fans). Better to figure out how to identify the top and keep opinions to yourself.
Also I’m really curious about the geographic distribution of their inventory… let’s do some Data Science on this blow up!
Didn't make any sense to us at the time on why Zillow (and also Opendoor) was making such a high offer, the process was very smooth AND fast. Too bad they won't be around.
So this is pretty big additional news from the context of this morning's article.
There were rumors that Zillow was trying to test if they could manipulate small markets - and they were trying to buy a significant portion of listings in those markets. If true - in those areas - they could get completely destroyed if they list a lot of places at once. And if true - I hope they get a huge fine for trying to manipulate the housing market.
The workforce gets the consequences for leaderships decisions
How can this even be possible? These numbers make zero sense.
The reason that local realtor groups will never get displaced by a Zillow is that in almost every area, those local realtors control access to the MLS. But...if a company like Zillow could come along and get a significant number of listings in an area that weren't represented on the MLS then Zillow could start to replace the MLS in that area without fear of being cutoff by the local realtor group.
To see that all they were trying to do was make money flipping houses...I'm honestly a little shocked.
But, this gets me back to my belief that Redfin is the only tech company in real estate with a real chance to be disruptive.
It’s a grotesque situation in Australia with property appreciating by exorbitant amounts every month to keep up with the rate of cash printing.
This assumes that OD isn't a house of cards.
https://www.wsj.com/articles/zillow-quits-home-flipping-busi...
https://finance.yahoo.com/news/zillow-shuts-down-home-flippi...
https://www.businessinsider.com/zillow-homebuying-unit-shutt...
https://www.cnbc.com/2021/11/02/zillow-shares-plunge-after-a...
https://www.seattletimes.com/business/real-estate/zillow-to-...
Planning renovations, sourcing materials, finding and scheduling contractors all involve a lot more than writing clever code.
1. ZO overpaid for homes, offering over asking price for most homes 2. During the pandemic, housing inventory/supply (the number of houses for sale) tanked. This hurt Zillow's primary business, which thrives on the velocity of the market 3. ZO continued to purchase homes during the pandemic, overpaying, and adding huge liabilities 4. The inevitability of increasing interest rates could (probably will) cause housing market fluctuations that leave Zillow-owned homes in the red for awhile
Zillow was leveraging their primary business to make Zillow Offers work. Unfortunately, a really bad year makes it difficult to justify the huge liability.
Zillow quoted a number for a house that I was selling right at the peak of all this, pending inspection. They couldn't come around and look at it though for about 6 weeks.
By that time the market had turned and they said they weren't interested.
This is completely subjective of course.
They are basically in charge of printing US dollars and buying their own assets.
And we think crypto is bad...
We should just end the Fed and replace it with a giant algorithm, with crowdsourced and transparent consumer price data. Maybe a few humans to keep the lights on, and to figure out how a 4K TV is better 'value' than a 1080p TV, etc.
Supply + demand. It's the law!
This is however surprising to me. During COVID, house prices have gone amok. A lot of buyers are now buying 10-20% over asking and waiving everything. Prices are going up 10% every 6 month in my area. If in this market if you can't make money buy flipping, I don't know how you can make money ever.
The software developers working for this company knowingly tried to make algorithms to flip and profit off of something that should be a human right
Replacing carpets and painting walls, trying to flip for a 20% profit, the people running Z must be geniuses
As a millennial looking at 2 bedroom flats selling for £575k (780k usd, not far from a million dollars) in my area, I cannot help but have tears of joy when corporations who hope to profit off of our desperate housing situation get hit by reality straight in the face
Ask yourself who benefits from housing prices rising. If you lie to yourself that it's people who are trying to move up the housing ladder, remember that your flat appreciating 50% in 2 years means the house you want to move into by selling your flat also appreciates 50%, so you win nothing
It's the rent seeking leeches of society that think that by buying a "portfolio" of houses, they can live out their lives without contributing society in any way
Anyone arguing against this has either a dog in the race, or loose screws in the head
If you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it.
We detached this subthread from https://news.ycombinator.com/item?id=29090845.
What implication am I supposed to take from this? Everyone has must contribute meaningfully to society or they're shit?
> Anyone arguing against this has either a dog in the race, or loose screws in the head
So if I don't already agree with you, I'm either lying for finical gain, or insane? Rough options... :(
What would you envision as the alternative to tenanted apartment complexes?
Let’s say you could wave a wand and outlaw rental housing as a business. Do you think the world would be a better or worse place?
If you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it.
We detached this subthread from https://news.ycombinator.com/item?id=29090845.
I think that is a little myopic.
Older buyers that are downsizing can make an excess profit in that situation. Although perhaps if excess numbers are downsizing to the same retirement homes, then maybe the retirement home owners win instead.
Also if you have a second investment property, you are definitely winning.
Finally, as house prices go up, you do end up with more equity (perhaps way more equity because a mortgage is geared lending). More equity can make a huge difference if you have any economic shocks, or if you care about passing on your equity to your children. Let’s say you have 10% equity in a $500k home, which then appreciates to $1M. If you die, you now have 550k equity, which is 11% house deposits for 5 children, or 27% deposits for each of two children. Not a bad trick.
I think a better way to think about it is that you need to own 1 house. If you don’t own a house, then you are shorting the housing market. If you own 2 then you are long the housing market. If you are a couple with kids, then you need to consider the chance of divorce (owning 1 home each is conservative, owning 1 home together is risky), and consider how much you want to give to your kids. Due to moral hazard I can’t see how you could insure against the risk of divorce.
Yes, they're profiting off of a bad situation, but they're not the cause of it. Bev from the local council's planning department, as well as Michael Caton's horrific propaganda piece, has done more damage than every flipper combined.
A lot of people want this. Its basic human nature ... take or construct the path of least resistance. Its just that most people cannot do this and only top 1% can.
The whole FIRE movement makes ppl aspire for the day when they can live on passive income from the savings/investments.
I admire your strong conviction. Cheers.
It must be this then that leaks some questions in my thoughts.
What if the money you buy the properties with is a result of your contributions?
Is there a decent and accessible way to have funds to buy such properties while not having to contribute first?
Let's say I've spent 20 years working 12 hours a day contributing about 4x the average productivity - would it be ok to buy properties and continue not contributing or should I be forced to continue contributing?
What is the optimal path to reap rewards of my contributions? Having taxpayers pay that money to me in a form of retirement is one way, but what if I paid 10x more taxes as a result of my contributions should 10 other people pool their taxes to pay my retiremenet to make it fair? Or will I get the same as those who worked half what I did?
I remember my father told me that in communism there were two options as well, you either had to contribute how you were told or else you were a parasite and put to jail. Seemed fair to many.
In 1920s Russia they mostly genocided them - this is not considered fair these days.
I guess the reason it seemed fair to many is that there is truth to the simplistic formulation of your feelings.
The best definition of evil I've ever heard was - "all evil is perverted good, and it is that aspect of the good which it retains that makes it attractive to many people"
Anyway, writing this as someone "without a dog in the race" what about your dogs in the race - you mentioned you were looking at properties right now?
I do think there is a place for a service like this even in a less frothy market. Like a trade in for a car, there’s definitely some percentage of people willing to accept a deal that is not the top one if it means they can cash out faster and with less hassle.
Suppose house prices evolve from price p0 to price p. The market gains (or loses) p/p0 in that period. If you get a mortgage, you're borrowing money to buy at p0; at any point in time with a price p and total repaid r your total value is given by (deposit + r + p) - p0. You're in negative equity if (deposit + r + p) < p0. You're in the money if p > p0, but note that this isn't multiplying your investment by the market gain. Instead, it's exposing you to the absolute change in price. So suppose (deposit + r) = 40k ; p0 = 145k ; p = 190k. You're in the money for 40k + 190k - 145k = 85k, having invested 40k (roi=2.1). p1/p0 = 1.3 (<2.1), with your leverage (mortgage) having bought you more exposure to house prices. You can then liquify and re-lever back into the housing market, with a larger loan due to you larger deposit (and likely increased income). Historically this has worked very well for people as p has tended to be larger than p0. It does not work well if you end up in negative equity.
Real estate is going up in value for the following reasons:
- Almost 2 decades of QE and cheap loans
- More people working from home
- Boomers leaving the workforce and cashing in their retirement
- People leaving high cost of living areas
- Foreign investment
There is no conspiracy. As these things pull back, and they will in the next 5+ years, things will soften. What Zillow was trying to do is something a bit different but it doesn't matter because they ultimately failed.
They already did go up some. Most people can't count to save their lives, but $1M at 2.5% APR is about $4K monthly (borderline doable for quite a few folks on 2 incomes), whereas at 16% (historical peak) it's something like $13.5K (not really doable beyond the top 1%).
In spite of their large loss, this could prove to be a wise divestment under that scenario. If loans get a lot more expensive (which happened during Carter and then Reagan years, see "stagflation"), the housing market will tank right away and people will be desperate to lock in at least some of the gains they thought they had, creating excess supply. Not a good environment for flipping, especially at the mid- to low end of the market. The game of musical chairs seems to be coming to an end, and Zillow has just grabbed a chair. Three legged and busted chair, but a chair nevertheless.
What would you envision as the alternative to tenanted apartment complexes?
Let’s say you could wave a wand and outlaw rental housing as a business. Do you think the world would be a better or worse place?
If you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it.
We detached this subthread from https://news.ycombinator.com/item?id=29090845.
