Company cites backlogs related to renovating homes, constraints for on-the-ground workers
Real-estate company Zillow Group Inc. ZG -8.52%▲ will stop buying and flipping new houses for the remainder of this year, the company said Monday.
The online home-listing platform, which got into the business of buying, refurbishing and quickly selling homes more than three years ago, said it would instead focus on closing existing purchase contracts and selling the homes it has on hand.
Zillow said it has stopped the practice because it was experiencing backlogs related to renovating the homes and that it faces constraints for on-the-ground workers.
“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” Chief Operating Officer Jeremy Wacksman said in a statement. “We have not been exempt from these market and capacity issues.”
Zillow stock plunged on the news Monday, falling more than 10% within the first hours of trading.
The American home-sales market has been on a historic rally during the pandemic, but sales volume has recently begun to cool. The premise of Zillow’s home-flipping business is the ability to leverage its vast platform to generate sales in volume and collect transaction fees on each sale.
Labor shortages have also hit several sectors of the economy as the workforce participation rate remains below pre-pandemic levels.
Zillow Offers, the company’s house-flipping outfit, accounted for more than half the company’s revenue last year. The unit produced $772 million in revenue in the second quarter of this year, a 70% increase over the same period in 2020, according to earnings reports. As of the end of the second quarter, the company still had 3,142 unsold homes on hand with a total value of $1.17 billion.
But Zillow may have purchased more homes than anticipated in the third quarter, leading the company to scale back for the remainder of 2021, wrote RBC Capital Markets analyst Brad Erickson in a note on Monday. “We think that Zillow remains relatively under-staffed in many markets which have only ramped up in the past 12 months,” Mr. Erickson wrote.
One of Zillow’s top rivals, Opendoor Technologies Inc., OPEN 1.75%▲ bought nearly 8,500 homes in the second quarter and entered the third quarter with contracts to purchase another 8,200, Opendoor said.
