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. The tracking of the performance of these companies is crucial in getting 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 house-flipping business. 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 housing market in the United States has continued to decline in the past few months. The stock prices of Zillow have never recovered even after the company announced significant changes in its operations. The company's share prices have been declining since November, and even today, 24 January 2022, the prices are at their lowest. Since early November, the prices have fallen more than 50% and have failed to recover.
Other companies like Redfin and OpenDoor have also had considerable problems in the market. For example, Redfin has also lost more than 50% value in its stock price, and its market valuation has fallen. OpenDoor technologies, the third largest real estate company in the United States, has also had a massive decline in its stock prices. The company has experienced a fall of more than 30%.
It indicates the likelihood of a market collapse that might be nearer than expected. Many people, including homebuyers, real estate agents, and home sellers, believe that a crash might happen because the housing market is in a bubble that will burst. There are many uncertainties currently due to the Covid-19 pandemic. Things continue to worsen each day without hope for relief at any time in the future. The considerable uncertainty makes it difficult for people to buy homes at the current high prices because of the increasing inflation levels.
However, many critics say that the current situation does not have anything to do with a housing crisis but a lack of faith in the iBuy model, which utilizes computer data to predict future and current housing prices. Many say that the model is erroneous and cannot replace physical house inspection to ascertain the conditions and costs of houses. Although the iBuy model might have major flaws leading to investors losing faith in the real estate market, it would be ignorant not to consider the current conditions. The situation is terrible and might not get better any time soon. The present conditions will contribute more to the housing crisis than the iBuy model.
As of today 14 March 14, 2022, the situation in the house market has continued to worsen not only due to the war in Ukraine but also because of the high rate of inflation. The major players in the housing market have continued to experience losses in their market capitalization and their share price have never recovered. Even before the war in Ukraine, the housing market struggled to gain ground in its prices. Many people are unable to buy houses because of the high prices and therefore the housing market is not doing well. It is unclear of what will happen in the next few months due to the many uncertainties in the world. Although the COVID-19 pandemic has gone down in some places, there are still many challenges ahead. However, as of now the situation of the housing market in the United States in bad and might take a long time to recover.
As of June 11, 2022, the housing market has continued to crash for the last few months. Zillow, Redfin and OpenDoor have lost billions in market value and it is likely the loss will continue because of the looming recession. On June 30 2022, a recession is likely to start in the United States. There has been a lot of inflation and a loss of GDP in more than two quarters looks imminent. Such an event will definitely trigger a collapse. The housing market will lose a lot because many people might lose their jobs and thus, will not afford to pay rent. It is an unfortunate turn of events for many people. However, the recession presents an opportunity to many individuals with savings and cash in hand. After the recession, homes will be cheap and there will be opportunities to find better homes at lower prices.
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