Real-estate firm Zillow Group Inc. is exiting from the home-flipping business, saying Tuesday that its algorithmic+ model to buy and sell homes rapidly doesn’t work as planned.
Ultralow mortgage-interest rates and a need for more space to work from home have driven robust home-buying demand in the past year and a half. Prices have climbed sharply in almost every corner of the U.S.
In recent months, sky-high prices have forced out some buyers, and the market has showed signs of cooling off, as many economists expected. The median existing-home sales price rose 13.3% in September from a year earlier—still unusually robust, though down from 23.6% year-over-year price growth in May, according to the National Association of Realtors.
The move represents a big hit to Zillow’s top line. Home-flipping was the company’s largest source of revenue, but it has never turned a profit.Zillow, which released earnings Tuesday, said its home-flipping business, Zillow Offers, lost $381 million last quarter, as measured by adjusted earnings before interest, taxes, depreciation and amortization. That resulted in a combined adjusted Ebitda loss of $169 million across all of Zillow.
Starting in the summer, competitors such as OpenDoor and Offerpad began to pull back from home purchases in one of the biggest home-flipping markets, Phoenix, as the red-hot pandemic market began to cool.
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