Power To The Elbow

Zillow is the most visited real estate website in the United States. They show what houses are for sale, available for rent, and give estimates for what your home might be worth should you choose to sell it. They make money from realtor ads, tenant referrals, and mortgage origination. Essentially, Zillow’s profits rise and fall based on how much activity there is in the housing market. If we want to get a clue about how the housing market is holding up in the face of rising interest rates, Zillow’s financial results are a good place to look.

On November 1, Zillow released their financial results for the 3rd quarter. Below is the quote they used to describe how things are going. 

“Despite a residential real estate industry that is down 14% from last year, Zillow is reporting positive growth: 3% in our total revenue, 34% in our rentals revenue, and 88% in our purchase mortgage origination business,” said Zillow co-founder and CEO Rich Barton. “We have strong momentum across the board, and it’s because we’re focused on building a better, more integrated real estate transaction experience for both movers and partners.”

Zillow’s core business of residential home listings declined 3% but their other business lines grew enough to cover the shortfall.

This is good news for Zillow but bad news for those of us interested in a strong housing market. Zillow diversified their business into rental listings and more significantly mortgage origination so that when the housing market slows down, they will still be able to grow in other areas. This is what they said specifically about housing.

“According to industry data from the National Association of REALTORS®, total residential real estate transaction dollars declined 14% during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 and more than 20% during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.”

The factors that have negatively impacted the number of transactions are low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates, and inflationary conditions. Their hypothesis is that fewer people are looking for homes due to higher interest rates. Thus, fewer people are listing their homes for sale or willing to move from their current location. Their website traffic numbers show this to be true.

This was taken from their 10k. “During the three and nine month periods ended September 30, 2023, visits to our mobile applications and websites decreased by 5% and 6%, respectively, compared to the three and nine month periods ended September 30, 2022.”

This is becoming a chicken or the egg problem. What came first? Fewer buyers because there are not many homes available for sale, or, fewer sellers because there are not that many buyers available to buy houses. 

We all have to keep in mind that the housing market is cyclical. It has busy times and slow times. According to Zillow, we are at the beginning of a slowdown that does not have an ending in sight.