Benson has been writing for several years gaining a lot of knowledge and insight on different areas.
There has been an absolute crash in the stock prices of real estate companies like Zillow, Redfin and OpenDoor. The massive declines in the stock prices of the organizations signal that the housing market in America is in huge problem, and there is the likelihood of an enormous crash. Most people claim that the issue is a Zillow problem, but it seems that other organizations are struggling too. On Tuesday, November 2, the stock prices of Zillow closed with a drop of more than 10%. Other companies such as Redfin and OpenDoor also struggled during the day. There is a need to track the performance of these companies to get a sense of the future in the U.S. property market. The look into the big players in the real estate market provides a view of the future in the United States. Although on the same day Zillow announced the drop in its shares was due to shutting down its house-flipping program and laying off workers in the entire division after it experienced losses, there might be a greater danger seen by the company that it seeks to avoid.
The company has been selling its properties at a loss in the last few months and wants to get out of the industry. It is unusual for a large real estate company like Zillow to dump over 7000 homes into the market and at a loss. The company is willing to lose millions of dollars in the short run. The organization has said that the sale of the homes is not to individual homebuyers but other companies like Wall Street investment funds. However, there is more than meets the eye given the position of Zillow in the real estate market. The reason is that in the past few months, the stock prices of Zillow mirror the housing demand in the United States. There is a huge coincidence that when there is a surge in Zillow shares, there is a huge demand for housing, and when the demand decreases, the prices go down. On November 2, 2021, OpenDoor technologies lost nearly 2 billion USD in market capitalization, a huge loss. The losses registered by the firm, the largest competitor to Zillow, confirms that the problem is not just with Zillow, but it is an industrial problem.
More Stock Price Decline Happening
Even on Wednesday, November 3, the shares of Zillow continued to drop, closing with a decline of over 24%. The decline is the biggest in recent days, and things seem to get worse for the company. Although the company reported losses in its third-quarter earnings from flipping houses, the continuous downtrend is a significant indicator of things to come. All the other major real estate stakeholders also experienced losses during the day. The continuous 3-day drop in stock prices is worrying and should be a cause for concern from new home buyers and property owners. The decline could signal the things to come and the kinds of drops that are likely to happen in the next months as the market continues to crash. Zillow has been the major focus of the housing market crash because of the prices it paid for its homes. In some states, the company sells houses with losses of 100K USD per house, which is huge in the real estate market. It is questionable for a large organization to sell houses for such huge losses.
Other Problems in the Real Estate Industry
Even though Zillow might be selling its houses because of an upcoming housing market crash, the company has had problems flipping houses. The company in the past months bought numerous houses and sought to flip the houses for a profit after making repairs. However, there has been a shortage of labor, and the cost of making repairs continues to increase daily. The huge cost of repair and the increase in house prices mean losses for the company. The real estate giant is willing to write off millions of dollars to reduce its current inventory, which speaks a lot to the market condition. The other curious thing is that the company wants to sell to other large companies instead of cash buyers. The move the get rid of numerous homes at once is a move that can be seen as an organization that does not want to take losses when the big crash comes.
Most companies in the know of things tend to offload their liabilities early to other establishments. It is also difficult to sell over 7000 houses quickly to cash buyers because of issues such as bidding wars and other matters that can come up in selling houses. It is, therefore, easier to dump the load to some other organization fast and get out of the situation. The huge discounts given by Zillow make the offers irresistible to other firms that want a piece of the lucrative real estate market.
The continuous decline in the stock prices of major real estate companies has a huge significance, as the same thing that happened in the 2000s before the housing market crash of 2008. It seems to be a recurrence of earlier events and indicates that history could repeat itself. The housing crash comes in the backdrop of high inflation rates, high housing prices with low job & wage rates. Many people are struggling because of the pandemic, and many cannot afford to buy houses as the prices continue to go up. The housing crash in America is definitely on the way, and many things can happen in the next few months that will bring the housing prices down.
Politics Affecting the Real Estate Industry
Other changes have also been in the market, such as property owners being requested not to throw out tenants who miss rent, citing the COVID-19 pandemic. The political moves have also had a huge effect on the real estate market because it leads to a decline in revenues for homeowners and property developers. The loss of revenue over the last months can also be a cause of the housing crash. The political interference of the market to cushion people from eviction because of the pandemic will cause problems because homeowners and large real estate companies experience losses and therefore are unable to function. It is a great move for tenants but a tragedy for homeowners who lose revenue but maintain their properties.
The American housing market is coming down in the next months. The decline in stock prices of major real estate companies, with some of the biggest seeking to clear huge inventory, is an indicator of things to come. There is the likelihood that the housing market crash on the way will be the biggest in the history of the U.S. because of the huge inflation levels. It might dwarf the 2008 market crash and will cause more problems than ever. The declining home prices might be good news for some but will devastate many people, especially new homebuyers who have bought houses at high prices in the last few months. However, the housing market crash is upon us, and major companies like Zillow are taking measures to mitigate their losses by seeking to write off millions of dollars in losses and shutting down an entire division as they brace for the impending disaster
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2021 BENSON M5