Zillow Pulls Out of Home Flipping Due to Unpredictability

According to Zillow Co-Founder and CEO Rich Barton, the company admitted to underestimating “the unpredictability in forecasting homes.”

Zillow Offers, the department that buys, and flips houses, will shut down due to the tight labor market and supply chain issues in the construction industry, according to company officials. The real estate giant had been binge-buying homes in hopes for a return on investment until about two weeks ago. 

Failures in Zillow’s algorithm resulted in purchasing more houses than it could handle. The decision, made by Zillow’s board of directors, sited projected losses of $550 million for homes purchased in the second half of 2021.

This year’s unpredictable and fiery hot housing market stood to likely benefit Zillow, however, industry experts say that the historic run is starting to lose some steam, and that has already affected Zillow. 

Supply Chain Issue

There has been a supply chain crisis in all types of markets this past year, but especially the construction industry. This has been particularly true when it comes to lumber.

Supply chain issues are a major part of why industry experts feel that the housing market will slow down, because the supply and demand do not match up. Barton admitted that Zillow, “Hadn’t modeled this kind of pricing market or supply market to even be possible when we got this business going.”

Labor Shortage

In the same way that the demand for materials is huge right now, demand for workers has gone through the roof. A familiar issue when it comes to this industry, the labor shortage, has been intensified amid high housing demand. 

This incident illustrates how industry challenges affect not just remodelers and construction companies, but big companies like Zillow that made investments based on the industry’s product.