Recently news that Zillow would be selling some of the properties it owns hit the market with shock. Not those used to financial markets, because this type of news is very common. But for those involved in real estate investments, this is certainly a warning signal. Leaving many to question what is really going on with this. There are over 7,000 houses that will be sold and the proceeds are expected to be $2.8 billion. This leaves most real estate investors and developers questioning exactly what prompted Zillow to completely change its strategy. Let’s look at what could be behind this decision.
Zillow has the data
Whether we like it or not Zillow controls perhaps the largest dataset in the US related to real estate. They are aware of the prices, the locations, what buyers want, and what sellers want. This is an extremely powerful source of knowledge and information. Could it be that this recent sale is based on deteriorating data from all over the US market? This is perhaps one of the first options to consider. It is in fact true that it can be one of the reasons for this recent sale. If Zillow’s management were aware that the price per square foot around those regions was going down. They might choose to sell right now and repurchase the same properties for a cheaper price.
Could it be a market top
Another idea that could be a consequence of this approach is that if this is really a real estate market top, we could soon see a housing bubble unfold. Once again Zillow has the upper hand here. Having access to a great percentage of real estate transactions, prices, locations, and knowing exactly how buyers and sellers behave is a major advantage. It allows you to dissect the market entirely and project where it is going in the short to medium term.
A shift in strategy
One of the most surprising things about this news is that it is difficult to understand exactly why Zillow completely shifted its strategy. If they were buying and flipping houses before, there has to be something that is pushing them to do it abruptly. It certainly does not have to do with financial problems, since the company is quite stable. So something else must be behind this.
What should real estate investors do?
Well at this point it is certainly too early to make any predictions or decisions. Perhaps the most important thing to consider is to be up to date with the news and to regularly check home prices in your area. Make sure that you do not see any large price fluctuations. Until we thoroughly understand what is behind this sale, it is impossible to tell what is coming and the direct impacts on the real estate market.
Could this directly affect supply and demand?
Well, this is for sure. Some real estate investors will feel pressured to sell their properties on the back of this news. Fearing that supply in the real estate market could increase significantly. This can cool down the real estate market, and even affect demand indirectly. Although part of the demand for real estate is families looking for housing, there are also plenty of investors and speculators. Those who are trying to profit from real estate might be inclined to avoid any large investments due to the news. Until they make sure this new stance from Zillow will not directly impact the market.
What can we expect going forward?
It is too soon to tell, and at this point, the best is to wait. Waiting to see how the market will react to this increased supply, and how demand is going to adjust in order to find an equilibrium. Part of the most important aspect is to see if a new lower price is going to be implemented. This is the key aspect as it can signal a significant decline in housing prices.