Here’s why Zillow had to cancel their iBuyer program recently.
Zillow just ended its iBuyer program; what does that mean for house prices here in San Diego? The whole premise of how Zillow bought houses was based on their Zestimate, an algorithm that calculates the price of your home. They believed in the algorithm, and they went all-in on it, buying homes that it said were a good value.
Over this last year, they’ve lost half a billion dollars through this program by overpaying for houses. As real estate agents, we always knew that the Zestimate was off. Sometimes it was spot on, but other times, it was off by 3% to 7%. This highlights how important it is to have a Realtor price your home correctly by taking a look at your house and diving into the details. This goes for other algorithms as well.
What’s going to happen to real estate prices now that Zillow has backed out? Frankly, I don’t think Zillow had that big of a market share, so it shouldn’t have that big of an impact on the market overall. The bigger issue is that there have been a lot of institutional buyers, like Zillow, who have driven up the price. As the market starts to level out, their margins are shrinking, and more of them might back out because of this.
Zillow had been offering higher prices, which made it hard for the contractor or school teacher down the street to compete for homes, so there’s one less institutional buyer to worry about there. However, there are more, like BlackRock, who are still buying homes. Even with this, I expect prices to level out until the end of fall.
Let’s take a look at what’s driving these high prices. The first factor is the super-low mortgage rates, which allow people to afford much more expensive houses. On top of that, loan limits just went up. The second factor is that we have a housing shortage of 5.5 million homes. It will be very difficult to build our way out of that with all the restrictions in California. The final factor is inflation. We’ve seen it before, and we’re seeing it in real estate.
Where do you want to have your money when inflation hits? Gold is fine, but it doesn’t give you any returns. Real estate is the best hedge against inflation because it locks in your mortgage rate, you get appreciation, you can buy down equity as an investor, claim depreciation, and get tax write-offs.
If I can help you buy or sell a home, please call, text, or email me, and we can have that conversation. I’d love the opportunity to show you what your home may be worth.