Zillow announced it will not sign any new contracts to buy homes until the end of the year due to a “backlog in renovations and operational capacity constraints.” The web-based real estate company made the announcement yesterday. Since then, the Zillow stock has dropped more than 10%. Zillow’s homebuying and selling service, Zillow Offers, largely drives its online marketplace.
Like competitors Redfin and Opendoor, Zillow Offers is an iBuyer service, digitizing the home purchase process. Naturally, the pandemic created a surge in demand for that virtual market. Zillow Offers, which is live in 25 markets, purchased 3,805 homes in the second quarter of this year: more than twice what it purchased during the first quarter. The segment accounts for more than half of Zillow’s total revenue. But even iBuyers are not immune to the inventory shortages and supply chain issues plaguing the current housing market.
Monday’s news came in the form of a press release from Zillow Group inc. In it, Jeremy Wacksman, the chief operating officer of Zillow, explained that the company is “operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces. We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.”
The news shook Wall Street, as well as the real estate market, with the Zillow stock quickly plummeting 10%. Although dramatic, the drop is somewhat in line with recent trends. As the pandemic-driven housing boom has cooled down, shares of Zillow have already fallen more than 30% in 2021.