Zillow Presses Pause on Buying Homes Amid Constraints

Labor Shortages Hamper Zillow’s Home Flipping Business

Online real estate company Zillow (ZG) has put the brakes on buying homes in the US for the rest of this year. Zillow is working to reduce the backlog of properties it already purchased but has yet to sell. In the second quarter alone, Zillow purchased over 3,800 homes.

Zillow blamed the problems it’s facing moving its inventory on labor constraints and a competitive real estate market. The real estate company said it is not immune to constraints which have hurt its ability to construct and renovate homes, and close sales. That has created a backlog of renovations and closings.

Investors React Negatively to Zillow’s Plight

Zillow’s decision to stop buying homes in the US caused its stock price to tumble yesterday. Shares of Zillow are down 31% so far this year. This is a far cry from 2020, when Zillow’s stock more than tripled.

Zillow made a name for itself by listing homes on its website and assigning values to properties, which it called “Zestimates.” It has expanded its business since then, branching into home flipping in 2018 when it launched “Zillow Offers.” Through the service, homeowners can request an offer on their house. Then, Zillow’s proprietary algorithms determine a price. Zillow buys it, makes light renovations, and puts it back on the market. Zillow’s flipping business gained traction during the pandemic. However, it is now taking a brief hiatus from buying homes.

Opendoor Open for Business

Zillow said it will market and sell homes for the rest of 2021 only, enabling the company to focus on the deals it has under contract. While Zillow is somewhat overwhelmed at the moment, its rival, Opendoor Technologies (OPEN), appears to be doing fine handling more deals. In response to Zillow’s homebuying pause, Opendoor said it is still purchasing homes and has put the infrastructure in place to ensure it can handle increased demand. This sent Opendoor’s stock price higher yesterday.

Zillow’s homebuying aspirations aren’t over. They are just on hold for the remainder of the year. It will be interesting to see how this choice impacts Zillow’s business both in the short term and the long term.

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