Scan to Download ios&Android APP

Zillow seeks sale of 7,000 homes that may be underwater

21:07, 1 November 2021

Share this article

Have a confidential tip for our reporters?

Zillow
Zillow seeks sale of 7,000 homes - Photo: Shutterstock

Shares in online real estate marketplace Zillow fell by 8.6% Monday as one analyst raised concerns that many houses the company bought could be worth less than what the company paid.

That report was followed by exclusive reporting from Bloomberg saying the company is seeking to sell some 7,000 homes for $2.8bn (£2.06bn), which would represent a slight premium over the company’s average selling price according to earnings.

The two reports combined to send Zillow shares 9.11 points lower to a price of $96.61 per share. Shares are still up more than 13% above its 52-week lows from last month but the stock is still down by nearly 30% year to date.

“Zillow may have leaned into home acquisition at the wrong time, and we believe earnings may be at risk due to its current homes inventory,” Ed Yruma, managing director at KeyBanc Capital Markets, wrote in a report obtained by Capital.com.

Flipping homes

Zillow was known for its mortgage and rental listings, but in 2018 began buying up homes to become a one-stop shop for buying, selling and listing homes sales online.

The company bought more than 3,800 houses in the second quarter on the way to its stated goal of buying 5,000 homes a month by 2024. Then last month the company announced it would pause its purchases amid labour shortages that prevent the company from flipping the homes to go back on sale.

Following that announcement, the company’s shares fell to its 2021 lows of $83 per share, some 58% lower compared with its all-time high of $203 per share achieved in February.

Booming housing market

Zillow leaned into buying homes just as the market peaked and consumers were paying thousands over the asking price to outbid an eager pool of buyers willing to shell out for nicer homes amid the pandemic lockdowns.

Key Banc analyst Yruma analysed 650 Zillow homes and found that 429 were now being sold below the purchase price for an average discount of 4.5%. Some of the homes were discounted by as much as 15% with three Arizona cities Tucson, Mesa and Phoenix representing the areas with the largest discounts of 6.1%, 5.3% and 4.9%, respectively.

“While we do think that Zillow's issues are likely transitory in nature, we do think it highlights the importance of strong property level and market data,” Yruma said.

Home selloff

Given the homes that are already underwater and mounting renovation and labour costs, Zillow is reportedly looking to limit its losses and sell some 7,000 homes its accumulated for $2.8bn, according to Bloomberg.

The catalogue of homes is likely to be sold to multiple buyers as opposed to packaging them all together in one sale, according to the report.

In the second quarter, Zillow reported $772m of revenue from its homes business on the sale of 2,086 homes at an average selling price of $370,100 per unit. At that average price per home, 7,000 units would typically sell for a total of around $2.6bn.  

Zillow reports third-quarter earnings after markets close on Tuesday.

Read more: Zillow pauses home buying amid labour backlog

The difference between stocks and CFDs:

The main difference between CFD trading and stock trading is that you don’t own the underlying stock when you trade on an individual stock CFD.

With CFDs, you never actually buy or sell the underlying asset that you’ve chosen to trade. You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional stock trading you enter a contract to exchange the legal ownership of the individual shares for money, and you own this equity.

CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional stock trading, you buy the shares for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks.

CFDs attract overnight costs to hold the trades, (unless you use 1-1 leverage) which makes them more suited to short-term trading opportunities. Stocks are more normally bought and held for longer. You might also pay a stockbroker commission or fees when buying and selling stocks.

Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading