Will Zillow’s iBuying Exit Hurt the Real Estate Market?

Zillow (NASDAQ: ZG)(NASDAQ: Z) recently surprised investors by exiting the home equity business. That was certainly a disappointment for the company’s shareholders, who had hoped for a new profit maker for the company. But a bigger question arises: what impact, if any, is this change having on the real estate market as a whole? In this Fool Live video clip recorded on November 3rd, Fool.com contributor Matt Frankel, CFP®, explains why he’s not too concerned about the impact.

Matt Frankel: Boston Stu Says, “Hey Matt. Do you think the recent developments in Zillow, which are giving up iBuying, will be a domino to end the boom in home prices? I wonder if institutional purchases have played a role in exacerbating the housing shortage.” have played.”

No, I don’t think the Zillow news will play a role in ending the house price boom. iBuying as a whole industry is right about 1% of the total housing market. Zillow wasn’t the greatest player in this field. Open door (NASDAQ: OPEN) is by far the biggest player in this area. Zillow’s iBuying accounts for about 0.2% of the total housing market. You mentioned earlier that there is institutional interest in the 7,000 or so homes they own. So I don’t think there is reason to be concerned about the price of your home over the Zillow news from a homeowner’s point of view.

Even so, I tweeted this morning that the Zillow news – they are leaving iBuying and how they approached it – is probably the biggest disappointment I’ve ever had with a company I’ve invested in, and I’ve had some pretty bad ones . It appears to be an incompetence problem. Just last week they issued a statement saying they would put iBuying on hold for the rest of the year due to overwhelming demand, and it really turned out to be a good cause. And then just a few days later to completely turn your business model upside down? They have said for years that iBuying is their growth engine.

So, as an investor, I’m disappointed, but as a homeowner, I’m not worried that this will create any domino effect. There is tons of institutional interest in home ownership, not just from iBuyers, but from many real estate investment trusts as well. Invitation houses (NYSE: INVH) is one that cleans up rental properties left and right. Opendoor released a statement stating that they are still in business. There are a few others in the room that are doing very well. It just seems to be mismanagement in this one case. From a homeowner’s point of view, I’m not very worried about this.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.