Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a unit that Zillow bought.
The algorithms are fooling themselves... Opendoor matches Zillow who matches Opendoor and that's how you get ever increasing offers.
Edit: oh, and now Zillow has that unit on the market, priced 14% lower than they paid for it, after 3 price cuts so far.
Very much like the $5000 books on Amazon where the algorithms are anticipating flipping an existing listing. Congrats on winning this round! The next step might be interesting which would be to go back and re-purchase the Condo once the price corrects to the 'real' price and bank the difference.
I have read this article and the one before it and it sounds very much like some folks who fell in love with their own idea and got early feedback that it was "working", went all in and never checked to see if it was still working.
The lesson should have been, "When you perturb an emergent system, never assume that the current state is the new steady state."
The most interesting thing for me back when I was in college was a discussion on of the professors on feedback systems gave on LA's freeway systems. There are three major interconnected freeways, 405, 110, and 10 which at the time formed a triangle. Now there is the 105 which cuts off the tip so perhaps a smaller triangle. The professor shared a paper that tracked "brake waves" which were aggressive braking maneuvers that would "propagate" backwards on crowded freeways. The paper showed that at the right time of day, an aggressive braking on any of these three segments could result in your own braking wave to "lap around" and hit you again. Sort of a ringing of the system.
This sort of effect can be present in any system that isn't centrally organized but is instead a result of the interactions within the system. Buying and selling real estate is such a system, especially when you are a 'market maker' in that system.
There are a lot of papers on how HFT trading algorithms interfere (both constructively and destructively) with each other on wall street exchanges. Just interesting stuff in my opinion.
I knew about the brake wave back in 1980, as I could see it on I405 on my way home from work. Due to a curve in the highway, I could see about 3 miles ahead. The wave heading towards me was pretty obvious.
I found I could "break" the wave by letting a gap grow in front of me that would absorb the wave, and I wouldn't have to brake to a stop (and so my clutch would last longer).
It never occurred to me to write a paper about it :-)
That's what I thought too until I started practicing this. Probably 75% of the time no one comes into the lane. It takes some practice to find the correct gap size.
Besides saving your clutch, you can do this type of brake-early maneuver at stoplights. Decelerating early and coasting at a lower speed means you don't have to stop and can increase your gas mileage significantly.
I sometimes do what the gp said - let a gap grow in front of me if I'm in stop-and-drive traffic and get annoyed when someone selfishly rushes to fill the gap in front of me only to have to break 60 seconds later.
On further reflection, that's not necessarily selfishness, more that they don't understand what I am trying to do, but there's no way to communicate complex information car to car on a highway.
I started a job in Fresno in 2013, driving up from LA on Sunday and back down on Friday.
Bluetooth had started to become standard in all cars, and as I was working on a train project, the idea occurred that if we could link all the freeway cars in series, and treat it as one long train, then I would essentially just have to steer, and we all would avoid brake-waves.
One car only needs to be able to talk to the one car in front of and the one car behind itself.
"by letting a gap grow in front of me that would absorb the wave" would cause the freeway to carry fewer cars if everyone does it. My oldest one used to argue with me on this point when I asked him to keep a bigger gap from the car in the front for safety reasons.
According to analysis from engineers, or Esther from a guy I used to work with who studied break waves for the state transportation board, less cars with larger gaps is better. That's why you see semaphores on highway entering ramps sometimes, ie 101 around SV or certain European big city inner highways.
This is a problem that can probably be solved someday with self driving cars collaborating to make highways huge coordinated conveyor belts.
Actually, this is a problem that is already solved by smart motorways in the UK (Europe too maybe?). They have a variable speed limit that dynamically changes according to traffic that stop brake waves happening.
If my experience with smart motorways is anything to go by they seem to increase brake waves because there are often times that speeds get reduced significantly for arbitrary reasons that not everyone chooses to follow. You then get larger closing speeds which causes people to slam on the brakes.
Additionally the removal of hard shoulders is just dangerous.
Seattle adjusts the speed limit on one of their highways down to 45 or 35 during rush hour which increases the throughput as the cars can be closer together. Not sure if that has been picked up by other cities.
You should read about the "Fundamental diagram of traffic flow" and it's corresponding diagram. It's very well explained and shows that throughput can increase when having fewer cars on the road
Ever since driving an electric car, I have come to believe that a gas-throttle car’s laggy response during stop and go traffic may be responsible for the elasticity of the delay propagation. From zero, a piston pumper goes through a complicated series of windups which seems like days compared to an electric motor.
Throttles have only become drive by wire over the last 15 years, prior to that it was cable actuated and was instantaneous. Like a lawnmower. One could argue carburetor cars were even (a fraction of a second) more responsive.
Also if you WOT a modern car you get the instant response without the ecu calculating pedal angle, comparing to accelerator history, humidity factors etc etc but kiss fuel efficiency bye bye. There are mods and tunes that reprogram the fuel map to cut out this processing time
I also drive a big turbo family sedan and am used to saying 2 Mississippi before the engine pulls at full boar
Though drive-by-wire throttles absolutely do modify and potentially hold back your throttle input for reasons of both economy, comfort and enforced driveline sympathy, there is also an inherent response difference between petrol and electric engines and also slop in the driveline system. That difference varies on the engine and transmission type.
Unfortunately I cannot find an easy good reference on what exactly that difference is quantifiably. Also many of the Electric cars right now are higher end even sporty vehicles, and more likely to have a throttle mapping that is more direct.
Brake waves happen because people brake harder than they accelerate afterwards. If you have enough following distance to brake gently, then hit the gas hard afterwards, and if everyone did this, then the waves would never appear.
I will see if I can find it, not all papers published in the 80's are online. (and I just looked the professor is emeritus at USC now but still around so I'll send him the question too)
Okay, so I'm pretty sure it was done by G.F. Newell (UC Berkeley) I haven't found the paper we discussed in '82 but he went on to publish a 3 part description of traffic dynamics called "A simplified theory of kinetic waves in highway traffic" and reading through the abstracts for those it covers the same territory we were discussing in the systems class I was taking at the time.
So Dr. Kuehl reminded me that he didn't teach me Linear Systems, he was teaching Electromagnetics at the time. (And no I don't know how I could confuse the two)
I believe the paper's author was Newell, but the USC professor was Dr. Kuehl (Dr. Cool :-). He was teaching Linear Systems when I was there and always had some really great "real world" applications of the stuff we were learning.
This is an interesting lesson in algo trading run wild. Roughly, house prices have a fundamental ceiling, and it is determined by the size of the monthly payment that banks will allow the typical homebuyer to assume when approving a loan.
If Zillow was the only iBuyer in a particular market, then that ceiling would likely have held, as all other non-zillow sales would still be operating under the loan approval constraint, and that would get reflected in the comps. But in a market with multiple ibuyers, none of which are capital constrained, it would make sense that they run up the prices against each other, past what the local homebuyers can afford.
Not sure how much that actually played a role here. But could be fun to do some back of the napkin math to see if that was the case in some of these markets.
> house prices have a fundamental ceiling, and it is determined by the size of the monthly payment that banks will allow the typical homebuyer to assume when approving a loan.
In the more irrationally-hot markets, why assume that housing is even being purchased on a mortgage by your average home-buyer, rather than being purchased cash-in-hand by a private or corporate investor looking to park wealth they've already generated? (Even if that isn't the majority of houses in those markets, the sales like that that do happen would still have an impact on property values in the affected neighbourhoods.)
Because the real estate sector is like 30-40 trillion. 2007 was the result of a massive infusion of debt by unsophisticated retail "investors" who bid prices up far higher than even their rental value. Lending standards dont allow this today.
If big institutional money is going to cause a frenzy it would need to be irrational money managers that somehow clear their purchases through a panel and none of them say anything. Some point out that blackrock is on the other side of this zillow unloading but they have trillions in assets and only 60 billion in real estate. This is the largest money manager in the world and thats all the exposure they have.
According to this article[1], large investment companies accounted to 16.1% of all single family home sales in the US in Q2. I'm not an analyst. But, I would think that would be plenty of extra demand to influence the price?
Perhaps. Unlike in 2008 though, those buyers aren’t typically hoping to sell those houses for a short term profit, most of those investors are hoping to turn them into rent income. This could easily distort prices, and have pernicious social effects, but might not be an asset bubble. After all, if those investors manage to actually charge enough rent to make a profit, is the asset really over priced then?
Investment companies are far less likely to lead a speculative bubble than retail buyers. They are professional investors who go through a valuation process. They have also always been part of the market.
History indicates the opposite. The largest speculative bubbles in history are typically driven by professional investors or high-net-worth individuals, not retail buyers.
Your fund managers make their money in short term win or lose. So they really do not have option to just sit on money, but have to look someplace to invest. Even if it doesn't work out in long term.
Where is this data coming from? Almost nothing you said is true or perhaps you don't actually understand what retail traders are. Retail traders, essentially by definition, do not have sufficient capital to cause large asset bubbles. Once an individual's net worth exceeds a threshold (generally enough to where their purchases or sales affect the spreads and liquidity of the underlying market) they are not considered "retail" by definition.
Even now, with retail being the most powerful they've ever been in human history, they might be able to squeeze a single, small or mid cap equity (GME being the most famous example) but they cannot move sectors of markets, much less create a generalized bubble in ANY asset class.
Crypto 2017 is the only "bubble" which you might claim was retail-driven (even then, you'd need to provide evidence for such a claim), and even that had institutional money such as Grayscale, high-net-worth speculators, and algotrading from high-net-worth speculators driving the bubble. Not to mention that was a tiny bubble relative to any equity market bubbles.
It's well-known Tech bubble 2001 was driven by investment banks. It's even more well known that the 2008 bubble was driven by investment banks, hedge funds, and derivatives trading. The current $2.5T+ market cap crypto bubble has been formed by large institutional buyers, high net worth individuals, and corporations pumping money.
Dutch Tulips, South Sea Trading Company stocks, 90s Japan were all from institutions or high-net-worth individuals (nobles, royalty, corporations, etc) as well. Your post really couldn't be further away from reality. The historic bond bubbles have all been inflated by institutions and governments. Making a claim that even one bubble, much less "most" bubbles are caused by retail, is an outrageous claim which requires extraordinary evidence that you would need to provide.
Im sorry but everything you wrote is just incorrect. The notion that retail cannot and has not caused bubbles in the past is asinine and your explanations of past bubbles are just factually wrong. Anyone in 2001 remembers their barber telling them which tech stocks they were invested in. The housing market was clear cut retail debt in 2007. And the entire crypto thing is retail. Blackrock is not invested in Bitcoin. You sound so confident but are just so wrong.
You need to read your last sentence out loud, to yourself, while looking in the mirror. You gave... an anecdote of a barber as proof? 2001 was caused by investment banks, venture capitalists, and changes in overnight repo lending. Not some folks each with an extra twenty grand chatting with his barber.
You're embarrassing yourself at this point between the barber and stating housing was "clear cut retail debt" in 2007 when it was actually a trillion dollar derivatives market that caused the bubble/crash, significantly driven by predatory/abusive from the mortgage lending side? Where do you think retail got all the money for the houses? "the entire crypto _thing_ is retail" uh, no, it's not. Tesla bought over a billion in bitcoin earlier this year, and large investment banks opened crypto desks early this year. And bringing up companies like Blackrock(?) which I didn't mention, oh my you are all over the place. Grayscale is not Blackrock... Can you present any evidence at all that retail has caused historical asset bubbles?
Sorry, you're just straight making things up and have a very poor or nonexistent understanding of markets. I won't waste my time here any longer.
Well you’re very dramatic and passionate but still very incorrect. The underlying housing market rise and collapse was from retail speculation, period. Sure they borrowed from banks but they still did the borrowing and actions. And who cares what the derivatives did in terms of diagnosing the underlying cause which was retail speculation. Wall street had a hand in causing the severity of the collapse theres no doubt about that, but they didnt drive the foundational bubble directly, only indirectly. The point is retail stupidity causes foundational bubbles. Derivatives made things worse but they were...derivatives, they're called that for a reason dimwit. And who cares about relatively small tesla position and “crypto trading desks” which have no permanent exposure. Thats absolutely nothing in the 2 trillion retail crypto environment. Crypto is retail driven regardless if its a big or small investor. Its not proper institutions buying. Please get real on this because you sound like a clown. I think part of the issue is you cant distinguish between retail and institutions. Retail doesnt become institutional just because they have a lot of cash/assets, rich people are still retail unless its a formal family office of which most people do not have (and even then Id say it more of a formality and still retail).
No, you're wrong on this and basically every single other statement you made. High net worth individuals are typically considered separate from retail traders, and yes, just because they have a lot of cash/assets. Part of the reason I kept saying [institutions OR high-net-worth individuals]. I didn't think that was such a challenging concept.
> Derivatives made things worse but they were...derivatives, they're called that for a reason dimwit.
>Please get real on this because you sound like a clown.
Real classy. Well at least I know now you were here just to be pompous and find a way to broadcast your lack of understanding of the market.
Nevertheless they are not buying houses for emotional reasons, but for the income stream.
FYI, the reason this is happening is that interest rates are so low that people are desperate for yield, and rental yield fits the bill.
There are a lot of benefits:
- professionally managed properties. Most small time landlords are incompetent -- the horror stories you see about landlords being petty or vindictive is from the small time landlord, not the professional manager.
- lower rental prices for properties people want to own. Institutional investors can move funds more quickly to increase rental stock where it is most in demand. Here, too, the yield will fall, which is another way of saying lower rents.
Moreover despite the moral panic by journalists that ordinary households are being priced out, this doesn't actually happen because most institutional investors operate in unconstrained areas, where home prices track construction costs, at most with a small delay. In these areas, an increase in renter demand will result in more property built much more quickly if the institutional investors participate. This actually drives down prices over the long term by increasing supply.
However in constrained areas, this would drive up prices for SFHs. But I thought people weren't supposed to buy SFHs in constrained areas - and institutional investors have been in the multi-unit market for over a century.
Yes, the correlation is not necessarily causation, but we can add some other data points -- for example the size of new construction has been steadily growing at roughly 2%, which does not suggest any kind of odd explosion in house size as a result of the price going up. Of course ultimately, ability to pay determines the price of housing and also house size.
> Because the real estate sector is like 30-40 trillion. 2007 was the result of a massive infusion of debt by unsophisticated retail "investors" who bid prices up far higher than even their rental value. Lending standards dont allow this today.
lol.
2007 was the end of a long road, paved by unsophisticated "money managers" and doubly unsophisticated "bank regulators" and even more unsophisticated "politicians" since WW2.
There are people buying houses for more than their rental value right now where I live. Because there's one crime-ridden trailer park maintained on the freeway nearby to make them all within a certain distance of a "disadvantaged zone" and thus every former manufacturing country factory boss looking to move to the US only has to lose $400-$500 dollars a month to buy his way to the top of the green card list.
> Under regulations ... an EB-5 investor would need to invest ... a minimum of $1 million normally or $500,000 in economically disadvantaged areas...
> You'll need to plan on having your money tied up in the business for several years. When you first get your green card, your permanent resident status will be conditional for two years. During the 90-day period before the end of the two-year conditional residency, you'll need to submit a petition to remove the conditions—to show you invested the required amount and created ten jobs. These two years and government processing times result in your money being parked until you finally get your unconditional permanent residency.
So practically it's pretty cheap to get yourself to the top of the list for permanent residency. All you have to do is buy a couple of $500k houses, rent them for whatever rent you can get for them, claim you created 10 jobs by hiring maintenance guys and landscapers and whatever else to maintain them, and then when you've got your paper from the US government you can turn around and sell them for what you paid for them (or even a little less, who cares, you bought your American residency).
The rules were changed from the original law to not only allow properties in economically disadvantaged areas but near them.
As I said, that's why there's a trailer park which resembles some "third world" country slums right on the freeway in the wealthier north Dallas suburbs where I live. All of those realtors selling rental houses to Chinese factory bosses, Russian mobsters' children, South American cartel finance guys, etc need them to be near the trailer park to qualify for the program. Similarly, via a ridiculous string of foot paths and bike lanes, Hudson Yards in NYC was determined to be economically disadvantage due to its proximity to Harlem, so they could also sell apartments that no one else wanted to Chinese factory bosses, children of Russian mobsters, South American cartel finance guys, etc.
If the current value of something is over a "fundamental ceiling" it means that it's already inflated. Why would an investor park their wealth in such an asset?
A large part of the "foreign ownership" plaguing west-coast cities like Vancouver and Seattle is capital flight from China. In this case, real estate has the valuable property of being harder for a foreign government (who happens to be the government to which the homeowner is subject) to confiscate+liquidate than other assets, so said government will prioritize softer targets. Real estate as an investment class here is acting like a club on a car steering wheel—de-prioritizing theft, rather than inhibiting it.
Sometimes there's just no good alternative. And real estate has less strict AML/KYC laws than other asset classes so we have some shady foreign money coming in.
Of course, taxes and regulations complicated this discussion.
It doesn't complicate the discussion, it is the discussion. Basically the only reason foreign investors are buying real estate in North America is because of issues directly related to regulations and taxes.
P/E ratios of much of the S&P500 would indicate prices/values far over the fundamental value, yet investors continue to flock to large-cap equities in droves.
It's a bubble but it's hard to fight it. US runs a trade deficit vs other nations meaning the trade surplus nations have too many dollars which they send into the financial markets of the US. They most likely buy international companies that have a presence in their own country.
Not the same thing though. The ceiling here is about affordability, not the value of the asset. A house is a need for the individual buyer, not an investment.
The iBuyers[0] are also capable of accidentally cornering a small market to weird consequences. When that happens, prices can temporarily spike and buyers can decide to defer their purchase/move until prices come down more.
This is particularly pernicious because while there is a ton of housing, very few actual units in a city are ever on the market at once, making it easier for a well capitalized buyer to corner. My small city (pop ~1mil) only has 638 units for sale according to Zillow, which is pretty small all considered.
0 - What an unfortunate name we’ve settled on. Reminds me of the era where every cheap infomercial product had to ape Apple naming conventions.
They do have a 'natural' ceiling, but with bold enough policy there is no ceiling in practice. Prices could still rise significantly with the use of negative interest rate mortgages (which exist in Europe), or simply direct financial subsidy to buyers (e.g. the UK's "help to buy" scheme), while maintaining reasonable monthly payments.
I spent a lot of time doing quant models for financial products. Two lessons:
- It's easy to get wrong. If you see a lot of opportunity all the time, it's your model that's wrong, not the market. Very trivial things can mess up your model, like not understanding what the input data means.
- Good trades are hard to get, common rule of thumb that your boss will tell you. Someone selling a house too cheaply? Either there's lots of other buyers or there's something about the house that you didn't think of.
I remember seeing an FX volatility model that almost never traded. It always said "the market is right, plus minus costs". Now and again it would ding and we'd carefully try to get it done in the market, you wouldn't do like Zillow and surprise all the sellers with a massive payday.
I also wrote an arbitrage bot from Bitstamp to MtGox once. I looked at it, didn't turn it on. Percentage wise it was a massive arb, but you couldn't see this in the raw numbers: credit risk on one of the legs. It just shows you that you still need to understand how things actually work. The model is only a calculator for quantifying opportunities that you understand.
This is perhaps the oddest thing about this story. Zillow must have run into several situations where they were paying more than what's sensible, and their staff must have reported this? Surely at the start of an algo buying program, you are vigilant to evidence that the program is wrong?
> Percentage wise it was a massive arb, but you couldn't see this in the raw numbers...
Counterparty risk, that is where the profit came from. I did the same thing, but went into it knowing what the exposure was and how to mitigate it: don't leave crypto in an exchange's hot wallet any longer than it takes to execute a trade and take profit only on exchanges that you could legally pursue in the event that they fail to execute a USD transfer. I also anticipated the debanking that followed... as far as I know I'm still blacklisted by one bank and two money transfer services. What I didn't anticipate was how many exchanges would get hacked and what that would look like to anybody who aggregated the transactions: I get cold called by actual financial institutions a few times a year, always looking to bulk up their dark pools - they somehow have it in their heads that I'm sitting on billions of dollars in BTC. They likely don't have enough of the puzzle to put together the fact that arbitrage doesn't take much when you only need three confirmation blocks - USD wire transfers were the bottleneck.
The issue with that arbitrage is that it was always one-sided. If you're arbing 2 equivalent markets (e.g. name trading on two different US exchanges), you'd expect to buy and sell on both markets in equal amounts, on average.
Bitstamp vs Mt Gox arb required traders to always buy BTC on Mt Gox and sell on Bitstamp (which is a strong indicator of cp risk). This makes inventory management very difficult - especially towards the end of Mt Gox where fund withdrawal times were of the order of months.
My favorite story of algorithmic pricing gone mad was discovered by a postdoc in my grad school lab, leading to an out of print book being listed on Amazon for over $23 million: https://www.michaeleisen.org/blog/?p=358
I worked on software that did algorithmic pricing. It was a race to the bottom because some bozo wanted to be on the first page of sellers. So they’d price it one penny under the lowest price. The next seller would match it. Before you knew it, the product was worth dollars or cents. We also had people do it on purpose (we called it price bombing), but that was easy to negate since we filtered out competitors with low ratings. But there went that bozo, price matching and beating the price by a penny…
It was madness trying to code around people not thinking about their effects on the market and still turn a profit. Spoiler: we never did turn a profit on bozo powered listings, because at some point, it’s better to free the inventory space instead of waiting for the bozo to sell their items and let the price climb back up over the course of months or years.
Why does pricing competitively to appear in the front page earn the label “bozo”? Should they prioritise the effects on the market ahead of their own profits or goals?
It sounds like a really interesting story that’s missing a few steps due to space - it’d make a great blog post in detail!
I think it is probably a great illustration of how merchants actually think. The idealized vision of a market induces a seller to act as you say, in reality there is probably a lot of indirect collusion, where people don't undercut each other too much, to not "damage the market", even without explicitly communicating with each other.
There has to be a floor. This is the point where no one is making any money, ever. You can sell below the floor when you’re just trying to make some inventory space because the things you can replace that space with is more profitable. But “bozos” were people who would irrationally price one penny less, even below the floor. Once a couple of them got in the same listing, the value of the item would drop pretty slowly over the course of days or weeks. Especially if their inventory was in the 10-40 range (yeah, we had a way to guess other people’s inventory) and the velocity of the item was 1-2 per week. With the value of the item dropping by a penny every day, we could work out how long we had. Sometimes we would just outright buy their entire inventory just to get rid of them and get the price under control for high value items. People pricing competitively above the floor was fun to write software for. It was the irrational actors that could seriously damage things for everyone.
They make a killing on that shipping too, you’re paying retail rates for shipping, but you better believe they have contracts with DHL, USPS, etc. that is well below retail cost.
Whenever I see items like that, all I can think is embezzlement or tax evasion - but then again you'd think they would do that on less unique items (like $1200 for playstations).
I don't know how many people remember the Lean Startup movement and Steve Blank's book "Four Steps to the Epiphany" which is about how to take one's product hypotheses and rigorously validate them before scaling up. But somewhere there's a side note that basically said, "If we end up in another bubble, ignore all of this, because in a bubble being careful and capital-efficient isn't a great strategy."
I think about that a lot these days given the absolute oceans of capital sloshing around. I'm glad you got a piece of it! But this is a really weird way to redistribute excess wealth.
I suspect the 'AI software' running these companies is using linear regression to predict housing prices and one of the inputs is the price of similar houses nearby.
I recall in one of the previous crashes it turned out a firm had a model that couldn't handle homes going down in value. A linear model is superior to that.
There was a Kaggle Competition in case you missed it. At least here you can see what kind of features they are using and what models people employed. See https://www.kaggle.com/c/zillow-prize-1
Could be stale information. I talked to them a while back. Still, transacting at the Zestimate price doesn't mean they're privy to the Zestimate algorithms.
Human/realtor appraisals are often very poor. They will take 3-4 nearby & similar homes and basically add/subtract the differences from the home they are comparing. Then they basically just average the adjusted sale prices. They might add a bit onto that price since prices go up over time.
So this has some obvious issues:
* Areas without a ton of very similar houses that have also sold recently will basically have no 'comps' to use.
* It's really easy to keep identifying differences (pros/cons) until the adjusted prices equal each other but it's hard to know if all of the meaningful differences have actually been identified.
* It gives average homes and average buyers a huge advantage. This model assumes that the housing market is hot but not hot enough that someone will pay 10-15% more for some specific feature. Anything unique to a home/property is only going to be worth a fraction of the time & money it would cost to add. Anything super common (kitchen remodel, finished basement, etc.) can actually add 100% or more of it's cost to the houses value because the buyer is paying with 5x or more leverage so paying a bit extra to have it included. This is also why it's often better to fix a few things as the seller than give a discount on the sale price - the buyer will often pay a premium to get things move-in ready since it doesn't impact their monthly costs significantly.
A Broker Price Opinion (BPO) is typically set by appraisal, comparable sales and comparable listings. Depending on how cookie cutter the neighborhood is, there are many different levels of "appraisal" from drive by photos to a deep inspection.
Maybe some reinforcement learning algorithm running as well, where the maximum reward is winning the bid. Hence the algorithm just goes and lays waste on other bidders. Gotta get that infinite reward!
One thing I don’t understand is that many people who buy houses in Phoenix believe in Global Warming getting worse in the short term (source: lived in Phoenix for a year, considered buying a house there, and spoke with many folks who just moved or were about to move).
Hot and dry is not that bad from a global warming standpoint. Evaporative cooling is very effective and efficient so it's actually less energy intensive heating in colder locations. The plentiful amount of space and days of sun makes solar energy very practical. The nights can get pretty cold so it means that certain evening hours are actually very comfortable.
If local real estate agents and developers can manage to manipulate the "Zestimate", and I'm pretty sure they are at least trying, you can imagine the payoff.
I wonder how much of our economy, that alternately humming along and collapsing around us, is simply algorithms talking to eachother? How much economic movement is being generated by arbitrage ( https://www.ecomcrew.com/amazon-arbitrage/ ) ? How much online traffic is generated by advertising bots interacting with each-other? How much are housing prices being juiced by algorithms?
I think the environmental crisis is already effecting the supply chain, I don't think we humans can see it yet. Are we Soviet Russia circa 1931, pretending like everything is going swimmingly while an enormous amount of us are about to starve?
Well, first of all, an unequal food supply chain has generated survival diets close to civilization, spreading new diseases to the entire world (hi Covid!, next door to bird flu).
Second, there are droughts popping up all around the world, our fisheries are collapsing but our supply chain might be absorbing the problems of it until suddenly it doesn't anymore.
That is my deep worry -- that we are seeing the start of a generalized system collapse.
That doesn't sound like an algorithm mistake, just like a policy to match sales nearby at the same price because of the assumption that prices will just keep going up coupled with the stupidity of not tracking what you've bought so far - yikes! Oh, on second thought, I guess it could be algo as that previously bought nearby condo could have been priced using some crazy algorithm.
"Prices will keep going up" was a key belief that triggered the 2008 real estate crash. They keep going up until they don't, and then the house-flippers who weren't careful enough and the lenders that approved "liar loans" get burned badly.
> the lenders that approved "liar loans" get burned badly.
the lenders "knew" of the bad loans, but because these lenders are going to on-sell the loan to some other investor, they didn't care as they profit off the sale, rather than the loan repayments. It's a moral hazard.
The loans were also bundled into opaque securities and the “low-risk” tranches were rated and priced for a typical rate of uncorrelated defaults, not a widespread crash.
Official #1: Btw (by the way) that deal is ridiculous.
Official #2: I know right...model def (definitely) does not capture half the risk.
Official #1: We should not be rating it.
Official #2: We rate every deal. It could be structured by cows and we would rate it.
And the parts that were so junky they couldn't be rated got remixed into another deal to get rated.
It stems from the idea that multiple junk bonds can be combined together to form a higher quality bond than otherwise. This is actually not true, but was the unquestioned underlying assumption.
Its definitely wrong to make this assumption, but the people who got paid are all incentivized to turn a blind eye.
> multiple junk bonds can be combined together to form a higher quality bond than otherwise.
Well it's obviously true. Take your good bond to get paid first from 1000 junk bonds. Then your 999 worse bonds get paid last. Even during the mortgage crisis, not all of the junk bonds returned zero. So there is some number of junk bonds that can be combined into a good bond and worse bonds.
The problem is that people estimated that number to be lower than it actually was. It was a quantitative failure.
They keep going up until they don't, and then the Fed quantitatively eases the losses. Sounds like Zillow's problem was they didn't sink enough money into their scheme.
I've been noticing lots of "new lower price" emails from Zillow; I think the market has cooled off - but how much of it being hot was this investor competition?
price reductions are seasonal in real estate. Peak new listings are around Super Bowl Sunday and Labor Day. There are very few price reductions in that period. The best quality homes at attractive prices sell first. By late October, the total number of listings on the market starts to decline, and price reductions become common.
It's also the last rush of sales before things slow down for the holidays. There's also a chance that interest rates will be higher next year. That would bring home prices down.
A lot of people were jumping in with their rundown old houses asking rediculous (lose your ass) prices and I'm seeing them all revise as of late. This was seen mostly in rural areas--Im looking for a farm.
I saw quite a few houses that sold a few years prior for much lower prices. The disparity in estimated values and previous sales versus the list price was astronomical in most cases. The banks will happily give you a loan for whatever price so there is no check on the runaway prices except for your own personal knowledge of the historical market demand in an area.
I'm not sure I follow your logic; if you're concerned with buying a house now, then prices from years ago are irrelevant. You can speculate that prices have risen too quickly and that they'll revert back to their earlier level, but that's ultimately just speculation. Comparable sale prices from the past few months are the thing to look at, to determine an offer that's likely to be accepted.
One thing to keep in mind about list prices: if the sellers do a good job of estimating the current market price, then the house will sell quickly. If you're checking listings infrequently, there's going to be some sampling bias in the listings you see; overpriced houses that aren't selling will be disproportionately represented in active listings.
They could have charged a review fee to have an appraiser visit & make accurate price estimates & then let the homeowner keep the Zillow certified valuation label if they don't sell it to Zillow.
it was purely about marketing driving up its own value via poorly considered metrics that invariably included positive reenforcement loops. eg, yahoo sells an ad for a company which sells ads on yahoo.
Is Opendoor an MLS/appraiser that also got into the flipping market? It looks like they are just another MLS service but the article states "It will be interesting to see how Opendoor reacts."
I think it’s a bit like when Amazon bots would occasionally drive up the cost of some random book into the millions, except they managed to fool each other into actually buying the damned thing.
In addition to back testing models like this, it’s always worth running forward simulations of what would happen if some/most/all agents in the simulation shared your new strategy.
reminds me of some bots on amazon someone pointed out a while back. Basically the only two sellers of some obscure book are two bots with competing algorithms that keep slowly increasing the price.
> ‘We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,’ CEO tells investors.
That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where you can't figure out how heavy the money bags that get dropped at your door will be. No, it's the bad kind of unpredictability where you can... lose money.
Reading between the lines, I conclude that Zillow sees a major shakeout in real estate on the horizon. They've already been hit with losses and see a lot more where that came from. In an effort to get ahead of whatever is approaching, the company is making an abrupt exit from the home flipping business.
Zillow was founded in 2006, as the last US housing market bubble was furiously inflating. It has seen a complete cycle of boom/bust. If anybody knows the US residential real estate sector, it is Zillow.
Other commenters on this and the previous thread pointed out, sometimes with first-hand experience, that Zillow would vastly overpay them for their home. I think this is less to do with the housing market in general and more to do with their tech.
Zillow's iBuyer program hit the scene like a bull in a china shop. The real story is that they rushed into this space, had underdeveloped algorithms, overpaid for homes, and now the chickens are coming home to roost.
The housing market may or may not take a turn. But this Zillow story is about incompetency. It smells of some non tech person pitching an AI solution. No need to inspect these homes and neighborhoods, the AI will figure it out.
That sounds like one of the AI people I work with. Like, I know the signal I just fed to our data is a negative signal, why do we need to wait 6mo for the AI to “figure it out?”
(The negative signal was equivalent to an email hard bounce for an email marketing AI. Like, if that signal is there, the customer is gone forever)
This reliance on AI magically figuring things out is pretty annoying.
Overpaying for a house is not a problem in an appreciating housing market. If you overpaid for a house, just wait for its actual market value to catch up and voila, no loss.
The reason you fire-sale that house at loss, is because you believe market value is unlikely to catch up.
> Overpaying for a house is not a problem in an appreciating housing market. If you overpaid for a house, just wait for its actual market value to catch up and voila, no loss.
The price you pay when entering the housing market is substantial. It corresponds inversely to the capital you'll have later to do other things. If you pay $900k for the same house your neighbor paid $600k for, your neighbor has an extra $300k to work with over 30 years, which is significant.
But inflation being as high as it is today...that $300k will be worth much less over time, and you aren't saving it all at once if the down payments are the same.
That isn't even to mention selling at a loss or close to it if you have a pressing need, which will hurt your chances of getting into the next house.
Nitpick but the reason you fire-sale that house at loss is because you don't believe the market will catch up in your beneficial timeline. The housing market historically has a pretty slow appreciation rate, but one that is fairly predictable. Maybe Z sees the incoming rate hikes as a high volatility event?
Holding onto inventory is death. In auto and housing sales if you’re a dealership you’re leveraged in order to hold that inventory (paying interest on it, less friendly interest than you get as a government backed mortgage borrower) and you’re paying insurance and maintenance on that inventory. Vacant houses depreciate very quickly.
Yes, you validated my observation with that assessment. But my point was more towards the private consumer. I think we see a lot of speculation in the housing market now and historically it has been a long term hold investment.
I’d be more inclined to believe this if it wasn’t painfully obvious how much Z was overpaying for homes in the last half year, especially when all the other iBuyers saw the market slow down and reduced their offers accordingly. Seems much more likely that we can take them at face value and Zillow’s forecasts were just bad.
Zillow hasn’t ever bought and sold homes (until now). That’s not their business.
Like 25 years ago I was writing software for financial traders back when trading was mostly done in open-outcry pits. What we had was very skilled human experts, so our systems were all basically supportive. Some larger rival, famous for their technology, thought they could do better by giving traders Newton-esque handheld computers that would receive new information via infrared networking. Then you didn't need smart traders, just monkeys who would do what the computer told them. Everybody was very impressed with all this high-tech gadgetry.
But one day we hit a period with high volatility, lots of price crashing and spiking. The handheld systems and the servers that drove them were too laggy to keep up, so the monkeys would get taken advantage of both on the way up and on the way down. It was a very expensive lesson for the execs who put too much reliance on the tech and not enough on the expert humans.
It seems so wild to me that not only are people making the same mistake, but at a much, much larger scale. Half a billion dollars lost. So far!
According to Forbes, Zillow has been buying homes since 2018:
> In April 2018, the company entered the fledgling on-demand home buying market (often referred to as ibuying) with a service called Zillow Offers. Prospective sellers in 11 markets (and growing) can go to the Zillow listing for their own home and ask for an offer. Within two days they’ll be sent a price derived from the Zestimate and other algorithms. Two local experts also provide input on each house, and if the seller likes the initial offer, a Zillow employee comes to inspect the property. (If a home is in poor condition the offer may be withdrawn or lowered.)
When I use Zillow and check the Zestimate, for various properties, it seems to be super far off. If they used it for speculative property purchases, I can imagine that would go terribly wrong.
If you're interested in the method they use to calculate the Zestimate, one of their data scientists did an interview back in 2017 (before the home buying started) that talked about the factors involved.
Recently had an appraisal for refinance. The appraiser's estimate was <5% increase from the 16 months earlier when we purchased even though we bought during March 2020 at the height of uncertainty and at a substantial discount.
The reason? No comparable homes that were recently sold AND available via MLS (private sales are ignored). The rules for appraisals breakdown when there is no liquidity. At least Zillow still considered private sales. The Zestimate was much more correct than the "expert" appraiser.
I don't know the exact percentage of properties not in Zillow but in the MLS, but it is a very small amount. Zillow changed the game when it came to us non-Realtors(R) having access to housing price data. So much so, that some housing economist types have noted what appear to be permanent changes in months of active inventory (eg https://www.piggington.com, who analyzes San Diego's market)
I don't think it's hyperbole to say Zillow has more data on residential real estate than any other company in the US.
About that last point, Redfin has access to the regional MLSs. I imagine they have a more complete dataset.
My understanding is that Zillow relies on realtors to add their listings, so that means, maybe-it-happens, maybe-it-doesn't, entry errors, maybe-it's-updated, maybe-it's not...
Hard to believe they don’t have MLS access. The listings on Zillow go up essentially at the same time my realtor has gotten them through the MLS, so they must have an automated way of pulling the info…
I question the wisdom of corporations house flipping. How can they evaluate an individual property and make the series of educated guesses about the co ability in various regions? How do they find and predict all the remodelling issues before they happen? How do they know that a particular house is worth messing with? I only know a few counties in Ohio where I would even attempt it because I know the areas very well.
If you could statistically trade houses people would have been doing it before we were born.
Your last sentence is really ironic given the article it is replying to. If Zillow really new the market so well, they wouldn't be in this position in the first place.
This is kind of a big deal in the real estate sector. The only reason that Zillow would sell everything right now is if they believed that the carrying costs of the properties until they (eventually) sell would eat all of their profits. They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly.
There's no way that OpenDoor doesn't follow them out the door here in the next couple of months. The business model is exactly the same. Anecdotally I haven't seen any reason to think OpenDoor is doing much better around here.
This coupled with the Fed tapering could cause the real estate market to cool pretty quickly.
If you're buying a home right now, make sure you're moving somewhere you're willing to live for a while and that you're not going to be in financial duress if your home loses 20% of its value.
It's a huge pivot to go from flipping houses to becoming a landlord. It would essentially be a disaster for them. That's a high-touch business and probably the costs associated with it, and the legalities around it are too complex. That's basically turning into an Avalon or something.
The interesting question is around their bonds. They were basically convertible bonds which likely triggered, but now they have to pay back the cash. How much of a liquidity crisis will this introduce to the company?
The more interesting thing is that this business crisis won't be reflected in their last quarter 10-Q which should be coming out soon. I'm assuming this is going to be talked about in that earning call, so that will be an interesting one to listen to.
I think Opendoor's model is a lot better, but I guess we will have to wait to see if there are any repercussions to their business.
If you're already in the market of buying/selling homes and you find a good contractor for your area (if you plan on making any changes) then it can be low touch.
Zillow, in many cases, just bought and instantly relisted the property on their own site.
This is the hard part. All the good contractors do this themselves, or they charge so much you don't make any money on the sale, or they're booked out 3 months in advance.
If you're buying a home right now, make sure you're moving somewhere you're willing to live for a while and that you're not going to be in financial duress if your home loses 20% of its value.
That's an odd way to say "I think you should probably consider renting right now" (which is absolutely what you should do if you think housing is likely to drop 20%).
I actually don’t think you should be renting right now. Even if house prices were to fall by 20% tomorrow it would still be cheaper to own than to rent in most cities right now. That may not be true as interest rates move higher down the road.
The fact that they're also laying off a quarter of their staff looks significant, to me. They can't afford to hold these properties and keep the lights on. It's a lot like Uber -- in addition to the ordinary expenses of a real estate holding firm, they've also got a website to run, and that's stupid expensive because it seems like the industry still hasn't learned from the first .com bubble.
> They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly.
There could also be the issue summed up as "thr market can stay irrational longer than I can stay solvent" issue. Even if your bet is right if you lack available capital for the temporal range and trajectory you can never capitalize on any theoretical gains. Even if you were right about Atari going bankrupt if you shorted at the very beginning of their existence in the late 70s and it took until the 90s for it to happen chances are you would default even though you were right.
Well - if the Fed stops buying MBSes and interest rates go up - flippers in highly speculative markets (almost everywhere ATM) are likely to have a bad time.
Yes, they did, but they could’ve still come out ahead if monetary policy wasn’t about to significantly shift and the carrying costs were reasonable.
Rising interest rates is absolutely going to have an impact on home values and mortgage rates. What it does to home transaction velocity is yet to be seen.
There's no way that OpenDoor doesn't follow them out the door here in the next couple of months. The business model is exactly the same. Anecdotally I haven't seen any reason to think OpenDoor is doing much better around here.
lol, there is zero chance that Opendoor stops iBuying in the short term.
They are indeed much better at systematically valuing houses than Zillow. This was already the case 5 years ago when I worked there, and they have relentlessly improved on their core model since.
Maybe Opendoor will follow, but there's also this perspective:
Selling or shorting Opendoor due to Zillow’s flaws is akin to shorting Google due to Yahoo’s inability to monetize search well or return long tail queries properly.
It can, but it's more downward pressure on higher cost homes (eg coastal metros). Even with higher rates, average home prices can increase like in the 60s through 80s, albeit just to keep up with inflation from higher interest rates.
> They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly.
The Fed is (likely) going to announce bond purchase tapering this week, they’re currently buying $80B of US Treasuries and $40B of MBS every month. I believe the plan is to taper buying completely before raising rates.
The lack of QE could see the long end of the yield curve start to rise, which would push home prices down. If and when they start hiking the FF rate, look out!
What I'm waiting on is for the Wall Street firms to decide that being a landlord isn't for them. Either because the margins aren't what were predicted, they don't want to be in the handyman business making repairs the tenants need, or because something else becomes trendy.
The aftermath when they decide to unwind their positions will be far-reaching. Probably not another 2008, but it'll certainly depress valuations across the country. Like you said, if you're buying now, buy because you need a nice place to live, not because you intend to flip.
>They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly.
Only for flipping. The real value was buying during the pandemic and holding as housing supplies starts tightening up.
Agree 100%... I'm astonished that a large corporation trying to get into this business, would "bite off more than they could chew". Don't they have MBAs and financial models to assess this sort of thing?
Yeah, throw your model at: "contractors took six months longer than expected to finish the kitchen"
Extrapolate that out a hundred thousand times and you get a sense of what they were trying to manage. How did they predict remodel costs? Pre-pandemic material costs and back-of-the-napkin labor estimates?
Isn't Zillow more like a post-IPO startup than a bigcorp? If so, it makes complete sense that they might "bite off more than they could chew," (e.g. Pets.com) a lot of startups end that way.
If MBAs and financial models can predict slowdowns, we won't have them at all. If anything ML models will exacerbate the situation IMO and they probably relied on them too much and bought more than they should. Of course what I said is also a projection (without even an ML model), so that is not accurate either :)
Their risk model should really account for the possibility that housing prices go down. I mean, there were famously in 2008 banking firms whose models didn't even allow for that.
A friend of mine had a really bizarre experience with Zillow’s ibuy. First, he sold right his condo through them right before the pandemic (Jan. 2020), but then, literally a week before his 90 day closing period was up, they pulled out, blaming public health orders [1] even though they would never be in his house and it was literally a matter of paperwork. They did this as a way to get out of their contracts and hedge their bets.
Flash forward eight or nine months, the housing market explodes and they triple down on their iBuys. My friend sells his home again, again with Zillow (I couldn’t believe he chose them either), and they offer him more than they did in Jan. 2020 (he sold sometime in 2021). Even with the extra mortgage payments he had to make, he still ended up making some money on the deal. Clearly, these companies were in over their heads, making bad decisions on algorithms and not doing real due diligence. The fact that they had an out 18 months ago and stopped doing this, only to triple down and lose $550m in a quarter is just staggering.
They were for a long time the de facto neutral party everyone used to look at houses. Great. Then they got into doing contracts apparently, still OK.
Then they started competing against people and overbidding everyone, at the height of what appears to be the biggest housing boom of my lifetime. This was not only apparently financially dangerous, but an act that puts them in a bad light, publicity wise.
I cannot think of how anyone thought this was an OK idea.
I think Zillow saw the numbers going up in the housing market and got FOMO.
It's crazy to think an institution like this would get FOMO, but I think what happened is in 2020 they saw housing prices go through the roof, thought to themselves "hey we have all of this data, we can make a quick buck here" and piled in only to now get burned.
They started ZO back in 2018. I think the bigger concern was the amount of growth and threat Opendoor presented them. There was a vision that they will fundamentally change the sector and make Zillow an equivalent of what the White Pages is to Google.
So yes it was FOMO, but not based on quickly appreciating real estate.
It makes sense there could have been internal shareholder/executive pressure to continue expanding into other aspects of housing markets to further entrench their positions against competitors, but hedging their bets backfired in some areas, and now is the retrospective time to cut their losses and refocus on their strengths.
> I cannot think of how anyone thought this was an OK idea.
I imagine they felt the only way to prove how good their Zestimates are was to start acting on them.
And it's entirely possible that the problem is they have spent the last 10 years tweaking their Zestimate algos to make listing agents happy, increasing prices. Like, nobody sues you when your estimate is too high, but when you get it too low, get your legal counsel prepped: https://www.marketwatch.com/story/do-zillow-zestimates-misle...
All of the 'Owned by Zillow' listings here in the Miami area are _really_ shabby flips. They'll basically redo the kitchen and leave the rest of the property looking like garbage and then ask for a 15% markup.
Also they prioritize those listings now, with no way to filter them out, so when looking at houses I end up just scrolling past several pages to get to other listings that I actually want to see.
It's amazing that this whole scheme has made their traditional user experience worse at the same time.
I can't imagine having Zillow's financial resources and losing money in the Miami market, of all places. Dear god that place is hot (real estate and weather!).
We recently went through buying a Zillow owned house in Phoenix AZ and response and attitude from the selling agent and zillow was pathetic. They took 3 full days to send the signed contract after they told us we our offer was accepted.
Couldn't get the inspection done within first 9 days(inspection contingency is 10 days) of signing the contract and only got a response when we said we were going to cancel escrow. Got the inspection complete on the 10th day and there were so many issues with the house and repairs done that we felt it was not worth the negotiation to sort it out with Zillow and decided to back out. Not sure if this is a general trend but my agent was fed up and he said he will never deal with Zillow again. This was 3 weeks ago.
"The surprising exit, announced with pedestrian quarterly profits, thrashed shares in another rough trading session Tuesday, a day after an analyst said two-thirds of the homes it bought are underwater."
The fed chart shows almost hockey stick growth in housing prices this year. How can the Zillow properties be underwater, did they just massively overpay up-front?
Yes, yes they did. The vertical part of the hockey stick is EVERYWHERE. Homework: go on zillow and find the most depressing row house in urban Detroit/Cleveland/wherever with enough pricing history to have a graph. You will see that exact same line shape. Literally everything has doubled since around 2014. Completely bombed out crackhouses were a 300-500% ROI in that period. You couldn't lose money even if you set the structure on fire. The past year has eclipsed that though. Everything has gone up massively and for seemingly no reason.
For comparison, since 2014 the US population has increased 4%.
Also, people aren't moving from somewhere to fill up your town, go on a random city subreddit and you'll see a different local mythology to explain the prices. It's happening everywhere though. There's literally no significant area that's seeing an exodus with decreasing prices. Not California, not libruhl lockdown states, not Texas, it's happening everywhere.
> Everything has gone up massively and for seemingly no reason.
The reason is quite obvious. Just like bond values and yields are inversely correlated, mortgage rates and home values are inversely correlated. Here is a chart of the 30Y mortgage rate, it should explain everything.
Yes but it's a little more complicated than just rates. It's a multitude of factors including perceived worth, available cash, financing rules, supply, new construction costs, etc.
People need to be willing to sign their lives away to pay off houses, otherwise rates would also be strongly tied to the price of everything from cars to toothpaste (they are very loosely, but those things don't cost 3x what they did in 2014).
I wonder if Black Rock will fare better than Zillow. My understanding is that they are not planning to sell/flip, rather rent then and hold on them forever.
BlackRock entered the market as a landlord all the way back in 2011. They are fine. Not only that, they have real investment knowledge. Zillow and OpenDoor are a bunch of amateurs that thought they could turn "data scientists" into quant traders.
I am not an analyst but this is my armchair understanding of the market:
1. The construction of new homes was limited in late 2019 early 2020. This was due to covid and labor shortages and supply lines being blocked.
2. Demand for homes rose to an all time high. The people in big cities said: "Why quarantine with nothing to do in my Manhattan apartment when I can buy a house and sell it when the pandemic is over. House prices always go up so I'll make money"
3. Zillow, banks, etc saw the fed start printing money which was going to lead us into an all-time high inflation rate. Their inflation hedge was simple: shift all liquids into long term stable solid assets. For most of human history this has been housing (single family and rental properties). Zillow specifically got a massive credit line via taking advantage of "zero risk" money from the fed via their bank.
4. Zillow + banks + the middle and upper class families start buying homes at a record high. This compounds with the lack of new supply.
5. Foreign speculators move in and see the increase in property value. The common wisdom of "prices only go up for homes" has encouraged them to invest in these properties. I know some people who have been doing this. Foreign speculators are concentrating on some limited markets (USA, Canada, and Australia).
Now that most of our liquid assets have shifted into properties any fluctuation in property value would have interesting implications so there will now be a large interest in keeping home prices high.
The core problem: properties are only worth what people are willing to pay for them. Regardless of what has been going on with inflation or how much money you have put into flipping it. If no one will buy the home for 200k over assessment then you have to lower the price. This is slowly causing a large reversal in the market. I've been seeing homes steadily creep back to what inflation would account for in price delta.
Yes, Real Estate can be a really flawed inflation hedge, and the relationship between rental yields and interest rates can also deviate sharply from conventional wisdom. Here in Brazil, although inflation is typically in the 4-10% range per year, and although all the rental contracts are tied to inflation indices, you look at homebuilders, REITs, physical real-estate, and nothing has kept up for the last decade. And for as long as I remember, gross rental yields have been lower than the real yields on NTN-Bs - our equivalent of TIPS - which on the face of it doesn't make any sense.
Nothing scientific, just observing ~20 listings by my apartment (that I would love to live in some day).
I would however offer that if anyone can give me unfettered access the data of multiple MLSs I could generate some visualizations. I really really really want this data.
That's the only possibility available as far as I can see. I recall seeing the housing stock they favored were all in the hottest US markets, so they're exposed to small fluctuations at the extreme end of the histogram. Otherwise the US median home price curve still looks like a boost phase ballistic missile track as of Q3 2021.
Zillow only got into this flipping game in 2018. They've never seen anything but rapid price growth. I will not be surprised when we learn the place was off the hook with buyers snapping up properties with no adults at the table.
There is always someone caught way over extended when markets move. This time one of them is named 'Zillow.' Expect a bunch of tedious 'insider' stories from Wired et al; wrecked hotel suites and orgies and $2e6 super cars. All the usual.
With the complete rout today of -11.5% and the additional -11.0% aftermarket on Zillow's stock, it's still up +95% from when Chanos made that comment.
Calling bullshit simply isn't worth the hassle these days (e.g. see Tesla and cryptocurrency fans). Better to figure out how to identify the top and keep opinions to yourself.
Sigh… It’s interesting that they blame the ML models, on the one hand it seems like a perfect example of ML gone wrong, on the other hand losses at this scale (hundreds of millions) don’t just signal that some data scientist’s model was not accurate enough… who’s running the ship over there? The ML model?
Also I’m really curious about the geographic distribution of their inventory… let’s do some Data Science on this blow up!
It's not really ML gone wrong, more like a misapplication of the technology. No one who understands ML ever claimed it could produce accurate forecasts of chaotic systems.
Weren't there headlines recently about a Google deep learning model producing the most accurate weather forecasts? Weather after all is the system from which chaos theory was first inspired.
Sold my house at the peek few months back to Zillow, they then sold it about 8% loss last month. The $/sqft price Zillow paid us is THE highest for our city EVER under <1mil price, and the record still stands after 5 months.
Didn't make any sense to us at the time on why Zillow (and also Opendoor) was making such a high offer, the process was very smooth AND fast. Too bad they won't be around.
For some reason I can't reply to dang's comment, but this is Zillow basically saying they are giving up completely on flipping, whereas the article this morning said that they were pulling back and delaying buying more houses to flip (not giving up, but in trouble).
So this is pretty big additional news from the context of this morning's article.
7k homes isn't going to move the national market remotely.
There were rumors that Zillow was trying to test if they could manipulate small markets - and they were trying to buy a significant portion of listings in those markets. If true - in those areas - they could get completely destroyed if they list a lot of places at once. And if true - I hope they get a huge fine for trying to manipulate the housing market.
Everyone in big tech knows product direction comes top down with tons of product reviews along the way. There is no way you have this big of a screw up without major culture issues or more likely, leadership wanted to gamble and didn't think it would be this bad.
The workforce gets the consequences for leaderships decisions
In a similar vein it's common knowledge in the used car business that Carvana overpays for vehicles. I wonder if/when they will implode or stop buying direct.
Except this time it's a bunch of "data scientists" that went through bootcamps or one year masters programs and have zero understanding of the market or trading.
When I saw Zillow doing this, I honestly thought it was for a different reason than pure profit on houses. I thought they wanted to take over the MLS.
The reason that local realtor groups will never get displaced by a Zillow is that in almost every area, those local realtors control access to the MLS. But...if a company like Zillow could come along and get a significant number of listings in an area that weren't represented on the MLS then Zillow could start to replace the MLS in that area without fear of being cutoff by the local realtor group.
To see that all they were trying to do was make money flipping houses...I'm honestly a little shocked.
But, this gets me back to my belief that Redfin is the only tech company in real estate with a real chance to be disruptive.
It would be fascinating to hear the insider perspective. What exactly went wrong at Zillow with their approach? What were they not able to solve that OpenDoor could?
I'm a little bit confused about what their strategy was. As I understand it, house flippers usually buy houses, do some renovations to add value and then sell in under a year at a higher price. It sounds like Zillow tried to buy homes and hold them until they appreciated? Was there any data that supported that this would be successful?
They were also trying to make upgrades and expecting they could lower the costs through scale eg give painters steady work at lower rates because they were a single party with lots of inventory.
Their vast trove of data predicted (probably correctly) that flipping houses in this environment is a sound financial strategy. The trouble is they couldn't also predict the massive operational complexity that comes with it.
Planning renovations, sourcing materials, finding and scheduling contractors all involve a lot more than writing clever code.
Despite the ethics behind the business, I thought Zillow Offers was going to be hugely successful. My guess is a few factors go into why it might not have been successful:
1. ZO overpaid for homes, offering over asking price for most homes
2. During the pandemic, housing inventory/supply (the number of houses for sale) tanked. This hurt Zillow's primary business, which thrives on the velocity of the market
3. ZO continued to purchase homes during the pandemic, overpaying, and adding huge liabilities
4. The inevitability of increasing interest rates could (probably will) cause housing market fluctuations that leave Zillow-owned homes in the red for awhile
Zillow was leveraging their primary business to make Zillow Offers work. Unfortunately, a really bad year makes it difficult to justify the huge liability.
If you want to know what happened, who was involved, watch for various high-profile exists from Zillow over the next little while (and including, but not only, the higher-level layoffs that will be included in the short-term 25% workforce reduction).
What I really want to know is if the housing and real estate market's are so hot, why do REITs offer such terrible returns? How can hot housing areas have appreciation of >15% while REITs offer ~4% returns?
Wondering if this is a tipping point? One thing is for sure, zillow’s competitors will get super careful.
And this should bring some sanity go the market
Zillow walks on thin ice - a cracking sound is heard, they look down - an Oh Shit moment occurs.
What now? tread with care, head for the shore, slide feet hope...
All over the USA/Canada - ROW? people will hold their breath, then a few places raise interest rates - how many people are there on this(Larsen?) ice shelf. Will we get a crackling downwards cascade????
May you live in interesting time....
That's about 2k employees in the Seattle area that will be looking for a job very soon. Who's hiring in the area? Amazon had a bad quarter too so I wonder if they're cooling off a bit on recruiting and hiring for a moment. Might be nice to have a Seattle area hiring/job opportunity thread of some sort to help folks.
Does anyone know where most of these homes were purchased? This kind of practice where companies buy large quantities of houses should be banned. It isn't fair for first time or second time home buyers, non-corporate buyers essentially.
Zillow quoted a number for a house that I was selling right at the peak of all this, pending inspection. They couldn't come around and look at it though for about 6 weeks.
By that time the market had turned and they said they weren't interested.
I don't get what Zillow's business model is or how they make any money. In the market where I live houses are going for crazy prices and under contract almost as soon as they hit the market.
Don't worry black rock ( look them up on yahoo finance) with 20 trillion dollars stolen from the american people via the privately owned federal reserve will buy up all the houses in
America.
They are basically in charge of printing US dollars and buying their own assets.
And we think crypto is bad...
We should just end the Fed and replace it with a giant algorithm, with crowdsourced and transparent consumer price data. Maybe a few humans to keep the lights on, and to figure out how a 4K TV is better 'value' than a 1080p TV, etc.
BlackRock was hired to run the feds open market bond operations. BlackRock are experts at buying bonds off the open market which is why they were hired.
BlackRock does not have control over the money supply.
What % of the market were Zillow purchases? And what effect has it had on prices overall? I mean one comp sale can effect 5, 10, 30+ homes, yes? All therefore also overpriced, and so on.
Does anyone have any insight into how you could lose so much money in a market that was quite hot? It says they paid too much, but how could you lose that much with any sane strategy?
This may be how it all starts. Zillow's CEO tweeted a few months ago that house prices were completely irrational in some areas. Who would have thought it was HAL 9000?
algo vs algo with boom and BUST cycle and the net effect people get fired. AI is NOT the holy grail. AI will not have ALL the answers , humans still have value and will continue to adapt to the new world order. Innovation should not come at the cost of people. We still need to survive reproduce spend time with our family / friends and put food on the table. And have a lil fun on the way. -2cents
their statement a couple weeks ago made it sound like the business was fine and they were just pausing due to a labor shortage... what happened in the past 2 weeks to make this radical shift?
TLDR; According to CEO they tried to estimate current price vs price 6 months down after a flip and their estimates had been way off. When house doesn't sell at higher price, it creates inventory, monthly loss on rent value and volatility in balance sheet which is not good for a public company. So basically their algorithms had a lot of noise and scale wasn't still large enough to smooth it out for balance sheet.
This is however surprising to me. During COVID, house prices have gone amok. A lot of buyers are now buying 10-20% over asking and waiving everything. Prices are going up 10% every 6 month in my area. If in this market if you can't make money buy flipping, I don't know how you can make money ever.
Zillow was at least a huge contributor to buyers needing to do the 10-20% over asking and waiving everything, so I wouldn't necessarily call that an indication of market health.
Good riddance, I hope this company burns to the ground
The software developers working for this company knowingly tried to make algorithms to flip and profit off of something that should be a human right
Replacing carpets and painting walls, trying to flip for a 20% profit, the people running Z must be geniuses
As a millennial looking at 2 bedroom flats selling for £575k (780k usd, not far from a million dollars) in my area, I cannot help but have tears of joy when corporations who hope to profit off of our desperate housing situation get hit by reality straight in the face
Ask yourself who benefits from housing prices rising. If you lie to yourself that it's people who are trying to move up the housing ladder, remember that your flat appreciating 50% in 2 years means the house you want to move into by selling your flat also appreciates 50%, so you win nothing
It's the rent seeking leeches of society that think that by buying a "portfolio" of houses, they can live out their lives without contributing society in any way
Anyone arguing against this has either a dog in the race, or loose screws in the head
> It's the rent seeking leeches of society that think that by buying a "portfolio" of houses, they can live out their lives without contributing society in any way
What implication am I supposed to take from this? Everyone has must contribute meaningfully to society or they're shit?
> Anyone arguing against this has either a dog in the race, or loose screws in the head
So if I don't already agree with you, I'm either lying for finical gain, or insane? Rough options... :(
So am I allowed to 'rent seek' if I also contribute? Or is 'rent seeking' so bad, merely contributing isn't enough? Is there an amount of rent seeking that's ok? Or is any amount of rent seeking egregious enough to get you on the shit list?
I think you're confusing the common meaning of rent for "rent seeking"[1] which, in economics, means specifically getting more resources in return for nothing. It's a pejorative definition.
Getting paid for a service is not rent seeking in the way people are using it here.
I actually didn't know about the pejorative nature of 'rent seeking', so genuine thanks for the link! IMO I didn't need to either, knowing the commonalty doesn't change the intent I was going for. Even if you're seeking rent above the break even point. I'd still say that's amoral at it it's worse ethically speaking. I mean to expose the hyperbole of the assertion that wanting to wake profit in of itself doesn't make you a leach. Manipulating the market, coercing a negative sum game (accepting a loss to force out competition because you can expend the resources). These are the immoral things people do. Pretending that, just owning property and having them gall to dare to not rent it at or below cost is what's immoral or unethical is harmful to persuading anyone currently undecided, that there are real harms with allowing malicious parties to abuse their capital to prevent others from even playing the game. Which is where the majority of the harms originate from. You dont win hearts and minds by lying about how the game is unfair, and anyone who dares to play is immoral. That's obviously untrue. The people that are cheating, or abusing the rules are what's unfair. And without the majority consensus we'll never be able to fix the defects in the rules.
Again, I think you're mistaking what people are saying.
> Pretending that, just owning property and having them gall to dare to not rent it at or below cost is what's immoral or unethical is harmful to persuading anyone currently undecided[...]
This is not what people are critiquing. No one else is talking about the thing you are. They are expressing their own moral judgements about a certain category of economic activity. That's why I linked you to a definition of "rent seeking." Economics does not make a moral judgement about rent seeking - it just says systems of exchange are more efficient w/o it.
Not everyone agrees on where to draw the line between productive business and rent seeking - but when someone speaks about businesses or owners "seeking rents" they are specifically talking about a proportion of their business that is past the point of making things worthwhile for them and into the range of excess. The definition of a "rent" in this context is that the business owner would make a reasonable profit without it. If they need to charge as much as they do to break even, it is not a rent (with some exceptions[1]).
There is another conversation all together that happens outside economics about how we should organize our society. The 'left' side of that conversation often includes the ideas that all landlords are bad or that profiting from property you own w/o labor is bad. Those are all ideas we could also talk about but they are orthogonal to the economic discussion. Economics cannot tell you what system of ownership is moral and morality cannot tell you what economic systems are stable.
[1] If an owner makes a bad investment and, say, buys a building at the peak of valuation, and then tries to pass on their bad investment to their tenants an an unethical way, that could be considered a "rent" in the economic sense as they are tying to get income on an unfair value of the building.
I think the point is that there is a structural issue with renting housing, in that most people who rent do not do so for the convenience of renting, but because they cannot afford to purchase. This creates a naturally exploitative relationship between the landlord and renter - the former is not providing a good (e.g. convenience) to the latter, they are holding the good (the housing) and then using the wealth asymmetry to extract rent.
Lending money endures risk. Landlords do have some risk but in the current supply side limited housing market the risk is drastically lower than the typical returns. e.g the bond market is probably a lot closer to the market equilibrium than the housing market. There are no NIMBYs in the bond market.
> If you lie to yourself that it's people who are trying to move up the housing ladder, remember that your flat appreciating 50% in 2 years means the house you want to move into by selling your flat also appreciates 50%, so you win nothing
I think that is a little myopic.
Older buyers that are downsizing can make an excess profit in that situation. Although perhaps if excess numbers are downsizing to the same retirement homes, then maybe the retirement home owners win instead.
Also if you have a second investment property, you are definitely winning.
Finally, as house prices go up, you do end up with more equity (perhaps way more equity because a mortgage is geared lending). More equity can make a huge difference if you have any economic shocks, or if you care about passing on your equity to your children. Let’s say you have 10% equity in a $500k home, which then appreciates to $1M. If you die, you now have 550k equity, which is 11% house deposits for 5 children, or 27% deposits for each of two children. Not a bad trick.
I think a better way to think about it is that you need to own 1 house. If you don’t own a house, then you are shorting the housing market. If you own 2 then you are long the housing market. If you are a couple with kids, then you need to consider the chance of divorce (owning 1 home each is conservative, owning 1 home together is risky), and consider how much you want to give to your kids. Due to moral hazard I can’t see how you could insure against the risk of divorce.
> I think a better way to think about it is that you need to own 1 house. If you don’t own a house, then you are shorting the housing market. If you own 2 then you are long the housing market.
> Because they would outbid people who actually want to live in those homes
If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P
Buying things you think are underpriced and reselling them is not frontrunning. (Ever since GME, a lot of people learned the word frontrunning and started using it in every possible situation.)
Zillow's plan was to act as a market maker. Market makers make a profit by buying things and then reselling them for slightly more. The difference is called the spread, and it's how market makers make money. Another example of a market makers is used car dealerships. Despite maybe seeming like a useless middleman, the reason market makers can exist is because they provide a valuable service to the buyer and the seller. They provide liquidity: you can go to a used car dealership and buy or sell a car today, instead of having to find someone to trade with directly. (If finding someone without a middleman were just as easy, the buyer and the seller would both benefit from just trading with each other directly. But they don't, which indicates that used car dealerships are actually providing a useful service.)
Zillow wanted to be a market maker for homes. They have a lot of data and thought they could use it to find homes that were underpriced, make a cash offer (benefiting the purchaser by giving them more liquidity via the faster sale), then quickly resell it. Their pricing algorithm didn't work, though, and they lost money. C'est la vie.
The key is that market makers are doing large volumes at very small margins. The market maker just needs to guess the market movement direction for the next interval of time (stocks would be sub second timescale, homes could be daily/weekly, etc.) then they can adjust what they buy and sell very slightly to profit from this spread.
If the spread is a large percentage of the assets value then it doesn't work as well and public perception is more negative. The housing market is much more difficult to properly become a market maker in because the transaction costs are high. The seller's realtor is going to want their >=3% commission. There's other costs like title transfer fee/cost, inspections, etc.
Also scalping is typically more of product's that are impossible to otherwise obtain and are sold at a huge premium.
I think Zillow frequently tried to make the seller cover these costs (whether directly or via a lower offer amount) but it seems they didn't do this successfully. It's also possible that the seller's who accepted Zillow's offer tended to have some X factor that would make their house more difficult to sell but properly handling every possible X factor is very difficult.
But the whole point is that the entertainer doesn't want liquidity, they want illiquidity, for two reasons:
1. The marketing value of a ticket being impossible to obtain. The best way to do this is to sell the ticket below the market clearing price. Then you get rows of people sleeping before the day they go on sale, etc. A lot of people want that image as they believe long term the marketing will generate more revenue.
2. They want fanatical fans rather than rich fans. They may feed off the worship or cheering and want those who go through a lot of hoops to get the tickets, rather than a salesman using the company expense account to wine some client who might not throw their bras on the stage or paint their face green and scream for their team. In this sense, you can think of the money the entertainer gives up by selling below market as the purchase price of audience enthusiasm.
Now if the scalper steps in, and instead of having the underwear tosser you get the businessman, then many entertainers/performers would be pretty upset as the scalper took for themselves the enthusiasm payment and left the entertainer with the market-rate fans.
Scalpers provide liquidity to producers of goods in markets that don't need additional liquidity. For the consumers, he does not provide any liquidity at all. So effectively, scalpers do not provide any "effective" liquidity.
Scalpers always buy stuff where there is already high organic demand from actual end users, because scalping only works if demand outstrips supply. This demand is the liquidity the producer of the stuff needs, and it's already sufficient for them to sell all their inventory quickly, so the scalper obviously does not provide any useful service to the producer.
For the buyers, they act as a seller, but for each item they offer, the original producer has one less to offer, as the scalper has bought it from the original producer. Therefore, they provide exactly no additional liquidity for the end user.
The only thing they do is ratchet up prices and reduce customer service levels (the original producer or an actual, professional reseller will most likely offer better customer services than some random guy on eBay), which are both net negatives for everyone but the scalper.
Aha, I was thinking of scalpers like the guy outside the stadium buying and selling tickets from fans, creating a secondary market. I can see how a scalper who swoops in and buys up the original tickets is not doing that.
I don't know how to frame this in economic terms, but here's an observation. It's no easier buying a GPU from a scalper on eBay than it is buying that GPU from Bestbuy. In fact, it's probably harder. So, they seem to be making it harder to obtain the item.
>If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P
The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy.
>Buying things you think are underpriced and reselling them is not frontrunning. (Ever since GME, a lot of people learned the word frontrunning and started using it in every possible situation.)
You're missing that this is Zillow, not a neutral market actor. They have unique information about demand for houses and even get to influence prices upward through Zestimates.
> They have unique information about demand for houses and even get to influence prices upward through Zestimates.
And that's the same shit booking.com tried to pull, that got them in trouble with the EU market authority. (If I remember correctly.)
The trading department should be separate from the affiliate department. Otherwise it's LIBOR scandal all over again. :|
> The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy.
If they have a few months. Sitting on empty houses is not free.
Though the whole problem with Zillow seems to be that they disrupt the local markets, because due to their sheer volume they effectively corner each local market where they operate, which makes them able to set prices.
(But then why have they stopped? Probably they realized they'd need more money to do that effectively, or that they'd get a huge asswhoop eventually. Or that they were unable to hedge their risks.)
> If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P
I mean, exactly - they lost $550 million. Didn't stop them from burning massive capital reserves to outbid tons of people and fuck up the market a bit for them on a bad bet.
So they basically gave $550 million to UMC homeowners by overpaying for houses, while making it slightly harder for other UMC wanna-be homeowners to buy homes for a couple months. Not the worst outcome I can imagine
Framing Zillow v residential buyers as some efficient market where Zillow is
competing like anyone else and not only that, providing critical liquidity via DMM capabilities (designated market maker) is absurd on multiple levels.
DMMs operate on exchanges with membership licenses and a galaxy of exchange regulations, especially around price moves. Zillow and the open real estate market has none of that. Similarly, a DMM would not outbid and market capture the way Zillow does. Another one you wouldn’t see on an exchange with DMMs is the army of debt financing behind Zillow vs what’s behind retail purchasers. Explaining beyond that how framing Zillow as a DMM is a cherrypicked approach with no basis in real estate market reality is not worth the time. It’s really a nothingburger of an approach that comes off as a quote from a Rand book.
At its core, a DMM provides liquidity. Zillow buying real estate, taking it off the market for a month to renovate and flip at a higher price, is not that.
> Despite maybe seeming like a useless middleman, the reason market makers can exist is because they provide a valuable service to the buyer and the seller.
Well, and also because it's illegal in some states to buy directly from a car manufacturer, so you're forced to go to a dealership whether they provide value or not.
Would eBay and Amazon be considered market makers, as they pair up buyers and sellers?
I don't think so. Market makers normally buy before having a specific seller in mind. I think eBay and Amazon's 3rd party sellers transact directly to customers, and just pay those sites a cut of each sale. eBay only is able to charge that fee (really, it's an economic rent) due to a monopoly enforced by network effects. A classic market failure. (I'm not as sure about Amazon but I wouldn't be surprised if a similar effect was at play.)
New car dealerships really don't many any sense and regulated into existence haha. I was referring to used car dealerships
You're not forced to buy a car from a dealer; manufacturers are forced to sell new cars through dealers in order to guarantee owners have somewhere to go for service and parts.
Back in the early days of the auto industry car companies sometimes existed just long enough to sell some crappy cars and fold before angry customers with defective cars came calling.
That's why the laws around manufacturers having dealers exist, no matter what Elon Musk tells you.
Ever notice that bodywork, parts, and repairs for Teslas are very expensive and difficult to come by? Plenty of Teslas with relatively minor body damage end up in limbo for months or more even though the insurance company is ready to pay for repairs. Why? Tesla's bodyshops have long backlogs because there are no parts, because Musk is desperate to get as many cars out of his factory as he can.
Lots of Teslas also get totaled because Tesla charges outrageous pricing for replacement parts. Musk is exploiting the insurance industry.
Insult to injury is that Tesla can decide one day that your vehicle is too damaged for their tastes, and refuse to sell you parts. No other manufacturer does that, not even Ferrari, and that's really saying something.
How would forcing new car sales to go through dealerships prevent Tesla from making its parts rare and expensive? Wouldn't all Tesla parts come from Tesla anyways, and just go through the chain Tesla->dealership->consumer, instead of Tesla->consumer?
(In case it's not clear, I'm legitimately curious and know basically nothing about dealerships.)
>If they outbid everyone who actually wanted to live there, who were they planning to sell to?
other investors. housing is only "underpriced" because it's become a commodity market that investors play in. the people who want to live in the houses have no hope of affording them when they have to compete with all the various capital funds that are buying houses and hoping to flip them to other capital funds using a slightly different algorithm to calculate value.
Your thinking is that there is a hierarchy of capital funds, each one willing to pay more than the last for the same house? And they all hold the houses, pay property tax, etc. despite the houses never generating any revenue due to no one living in them? That doesn't seem like a very realistic perspective on the housing market
Why would other investors buy an overpriced home? They are also looking for the deals that Zillow is hoping to find. Owners wanting to live in a home are the ones willing to buy a turnkey home above asking.
So if the previous owners moved out and then repainted the house and sold it for 20% additional value, would they be villains too? Or is it okay because they're "middle class" and Zillow's shareholders presumably are just yacht-owning billionaires?
I think there’s a difference between a company with enormous amounts of capital buying a bunch of houses to flip, intentionally trying to drive a trend of increasing home prices to profit, and a single homeowner improving a single house and profiting primarily because of the improvements and not because he’s driving the market up massively..
Zillow wasn’t fixing them up, though. They were putting minimal-effort, superficial changes with zero care or actual investment, and then resisting for a higher price.
People who flip houses don't put in more money than they need to, that's a tautology. It still adds value to the market.
"Scalping" makes zero sense in this context. Scalping exploits ticket mispricing and asymmetrical access to the market (waiting in line). Houses are bought at auction; you can't "scalp" at an auction. Try it at Christie's sometime.
To further your auction analogy, Zillow was doing the equivalent of offering Buy it Now prices above asking and owners were selling immediately. They had asymmetrical access to the market because they had asymmetrical capital.
They were literally scalping properties. And, like a scalper who has too much inventory, they’re now selling at a loss.
The first part of this is correct; the second part isn't. Rather than earning a profit, Zillow's current situation is the result of the invisible hand of the market correcting its economically-irrational behavior.
Real pain would be buying an overpriced house that was bid up by Zillow or other similar companies and then needing to move. Missing out on that overpriced sale would actually be great!
Which is going to be a lot better for the middle class in the area then the situation pre-Zillow iBuyer (given the massive discounts). Zillow was a net-positive at least for the Phoenix market.
I take issue with the cheap flips. This type of flipping is really only possible in a hot market where inspection contingencies are regularly waved. Cheap flips are basically robbing the community by lowering the quality of the housing stock and leaving future owners with higher maintenance costs. In a more balanced market, these houses would either drop in price or linger on the market until the owner did worthwhile improvements.
Granted plenty of mom and pop flippers are doing cheap flips in this market as well. Zillow was just jumping in on the action at a much larger scale. But if I was king for a day, I think I would pass a law that required inspection contingencies on all residential real estate transactions. And maybe some sort of escrow for undisclosed maintenance issues that occur in the first year or two after the sale.
It's actually even worse; a fresh coat of paint can truly hide actual problems. I've had that experience house shopping myself. I tended to shy away from places that smelled like paint, even though often they're painted for "good" reasons.
Hell, just last weekend I read a home inspection that specifically cited inability to assess interior and exterior wall cracking due to recent paint.
In defense of Zillow, they weren't looking to buy a "portfolio" of houses - they bought as many as they sold, and didn't have any net negative effect on housing supply.
Yes, they're profiting off of a bad situation, but they're not the cause of it. Bev from the local council's planning department, as well as Michael Caton's horrific propaganda piece, has done more damage than every flipper combined.
I'm not saying Z is the cause of the crisis, it's more like them trying to capitalize on it. How bad you view this is based on your political quadrant, so fair enough to those who don't think it's a problem.
What I'm trying to bring attention to is that our generation is frustrated, we are priced out of owning a home unless we have some massive help from our parents or inheritance, and being repeatedly told that we will own nothing and it is for our own good is demoralizing.
There might be a sizeable portion of people who do have help from their family of putting down massive six figure deposits or are up on their luck from investments, but I still think it's important to bring attention to the housing crisis for those of us who haven't had the same sort of luck.
>What I'm trying to bring attention to is that our generation is frustrated, we are priced out of owning a home unless we have some massive help from our parents or inheritance, and being repeatedly told that we will own nothing and it is for our own good is demoralizing.
I don't disagree with you, and I'm in the same boat personally (young family currently renting, looks like we'll be able to afford a house but only because one of our businesses has taken off in a massive way).
I just feel like we as a generation, when expressing our frustration, obsess over who has what rather than the systemic obsctacles getting in the way of us gaining a stake in society.
Screaming at people who have more than us is cathartic, but ultimately achieves nothing. We need to refocus our efforts towards solutions that are achievable and impactful.
I never advocated for a "pacifist approach", but if we want housing to be affordable we need to pick the right battles.
Advocating for things like tax reform, financial restrictions which limit the utility of residential property as an investment vehicle, incentives for empty nesters to downsize, less restrictions on property development, or even high-speed rail between metro areas and regional hubs will all put downwards pressure on property prices.
The "own nothing" wouldn't be so bad if there were massive reasonably priced rental units being built, but that's not a thing either. NIMBYism is killing rental too.
"own nothing" may be good in a competitive market with lots of small players that can't feasibly fix prices and engage in cartels. Reality has not been like that. At least where my sight reaches, every commodity our days is engaged in cartels and (somewhat) regulated.
No, not at all. They were trying to set themselves up as a market maker. They did not want to hold a position. They screwed up and got behind, which incurred the risk of the market moving against them (it did).
Matt Levine's Money Stuff column covered this in detail. Incompetence, not villainy.
Zillow was literally scalping housing, a basic human need that all people must buy. That's generally considered very immoral by most reasonable people. And they didn't just do it once or twice, they did it at ridiculous scale (tens of thousands of homes sold last quarter, was a sale to a scalper to artificially drive up all housing prices).
Most reasonable people would consider this behaviour to be evil (like, comic-book-villain level evil). Even scalping a optional-only luxury item like concert tickets or whatever is already considered unethical by most folks.
I don't consider it evil. When you buy a house, fix it up, and resell it, you're essentially providing a renovation service to whoever will buy it next. There's no meaningful difference between you renovating a house and selling it and an owner-occupant buying the house and renovating it themselves.
In this case, Zillow bought houses too high and sold them too low. As a result, the market punished that irrational behavior.
If there's no difference then there'd be no profit for Zillow and they wouldn't be doing this to begin with. Clearly there's a difference and it's morally bankrupt
That would make sense if Zillow employees were literally the people painting the walls. As it is (or was), there's probably a project manager that managed hundreds of houses, spends all day on the phone call painting companies, and then just assumes they do a good job. I'm perfectly capable of calling a painting company myself and don't need to pay Zillow thousands of dollars extra to do it for me.
The integration of renovation in the sales process is a differentiating factor in itself. That you're not the target market or, that it might not have been successful, doesn't change that.
>Zillow was literally scalping housing [...]. That's generally considered very immoral by most reasonable people.
sorry, what were they doing?
Scalping may also refer to:
Scalping (trading), in trading securities and commodities either a fraudulent form of market manipulation or a legitimate form of arbitrage
Ticket resale, the resale of tickets to a public event such as a concert or sporting event
The arbitrage definition under "Scalping (trading)" (ie. making money off the bid/ask spread) doesn't seem very immoral to me. I don't think they were buying houses in an area, then recommending people to buy it, so it doesn't fall under the fraudulent definition. The "ticket resale" definition doesn't really fit, because zillow isn't really acquiring houses at below market value. They're buying houses from the same market as everyone else.
>a basic human need that all people must buy
you need to buy housing, not necessarily a house. They're not the same thing. You need to buy food to survive, but you don't necessarily to buy a farm.
>tens of thousands of homes sold last quarter, was a sale to a scalper to artificially drive up all housing prices
but the fact that they lost money suggests that they didn't drive up housing prices?
First of all, lots of people thinking something doesn't make it true. Verify yourself at your local church.
> Most reasonable people would consider this behaviour to be evil (like, comic-book-villain level evil).
This requires supporting evidence. Comic book villains do things like murdering half of all living things. Show me that study that says people think flipping houses is that bad.
I've met plenty of people who were flipping houses, and I'm pretty sure if most people thought it was on a par with comic book villainy, they would not just stand at a kids birthday party and talk about it.
Willingness is not necessarily, informed consent, and even that might be due to exogenous probabilistic predetermination.
So if we go by Rawlsian concepts: if it's not fair, it's immoral. If the market maker makes too much, then it's economic rent (due to rent-seeking behavior), which a lot of people consider immoral.
I don’t understand how it is rent seeking. They are actually improving the supply of housing by fixing them up.
How is it possible for the market-maker to make “too much” in a free competitive market? They don’t have any special capability that the average home buyer doesn’t have.
I really don’t understand the angle. Capitalism is all about selling 5 cent pencils for 10 cents.
It's more complicated than that since they also have a huge influence on prices through Zestimates. They undoubtably kept housing prices rising for the past few years, which was very profitable to them as large scale flippers.
More so than providing liquidity they are providing increased velocity. I would love to know if there are properties that Z has bought and sold more than once...
Would there be a bad situation if there was nobody profitting from it? Maybe there is a root cause, but Zillow is certainly one cause why this is so bad. Not the root one, but a cause still.
> buying a "portfolio" of houses, they can live out their lives without contributing society in any way
A lot of people want this. Its basic human nature ... take or construct the path of least resistance. Its just that most people cannot do this and only top 1% can.
The whole FIRE movement makes ppl aspire for the day when they can live on passive income from the savings/investments.
When we used to have a functional banking system, you could work your ass off, make your money, and simply put it in a savings account, or Certificate of Deposits (CDs), and make 4-8 percent interest while inflation was 2-3%. That money was reinvested locally as loans to local businesses.
The advent of free money to cover the insolvent institutions caught making stupid decisions, but managing to be "too big to fail", stole a lot of money from local economies, and my parents.
The thing with FIRE movement is more about escaping being forced to work soul sucking jobs, commuting, management, mindless boring tasks.... And it's not always easy to change fields, or change company, move city, ....
People that I know that are already FIREd or plan to don't actually intend not to work. They want to, but on things they actually enjoy. If there was UBI the FIRE movement would go significantly down because one of it's main goals would be achieved by default. Right now the only way to get those goals is with passive income from investments.
We have this one life, and wasting it is not the way to go. FIRE people don't want the riches or hoarding insanes amount of money for power trips with their buddies. Most are very frugal in fact, that's the only way to achieve FIRE in the firs place. They just want the freedom from forced work. That is the essence of the FIRE movement.
I think FIRE is mainly about not needing to work anymore. Passive or investment income isn’t the goal, just an (important) way to be done working earlier. E.g., in a hypothetical world where you only had interest-free savings accounts, you could still retire early, you’d just need to save more first.
Until Zillow starts whining about neighborhood character at city council meetings and donating to Howard Jarvis taxpayers association I couldn't care less what they do
Commenters calling your comment ‘myopic’ is the pot calling the kettle black. Their attitude exemplifies the problem of the commoditization of a fundamental human need. They sacrifice the long term health of the housing market for short term profit. It’s shameful and I expect better from people who so often claim to be educated and logical. Personally, I couldn’t live with myself if I sold perfectly good family housing to a corporation for convenience’s sake.
Note that the free market has ultimately punished these companies. On the other hand, the unaccountable councils and politicians are the ones creating the problem due to zoning an supply issues. As such, I think the outrage is a bit misdirected (as it often is).
Since I don't own any properties I must have some loose screws in my head as apparently only 2 options are available. :)
It must be this then that leaks some questions in my thoughts.
What if the money you buy the properties with is a result of your contributions?
Is there a decent and accessible way to have funds to buy such properties while not having to contribute first?
Let's say I've spent 20 years working 12 hours a day contributing about 4x the average productivity - would it be ok to buy properties and continue not contributing or should I be forced to continue contributing?
What is the optimal path to reap rewards of my contributions? Having taxpayers pay that money to me in a form of retirement is one way, but what if I paid 10x more taxes as a result of my contributions should 10 other people pool their taxes to pay my retiremenet to make it fair? Or will I get the same as those who worked half what I did?
I remember my father told me that in communism there were two options as well, you either had to contribute how you were told or else you were a parasite and put to jail. Seemed fair to many.
In 1920s Russia they mostly genocided them - this is not considered fair these days.
I guess the reason it seemed fair to many is that there is truth to the simplistic formulation of your feelings.
The best definition of evil I've ever heard was - "all evil is perverted good, and it is that aspect of the good which it retains that makes it attractive to many people"
Anyway, writing this as someone "without a dog in the race" what about your dogs in the race - you mentioned you were looking at properties right now?
> What if the money you buy the properties with is a result of your contributions?
This isn't math. Prior "good" contributions to society don't even out "bad" contributions, no matter how we define them. To put an extreme example, you're not allowed to steal from anyone no matter how many people you helped recover their money from scams.
> What is the optimal path to reap rewards of my contributions?
It's very easy: do not speculate with human rights. When you buy a house for "investment", you are adding demand to the market, pushing prices up. Housing is inelastic, specially in the short term, so you're probably driving someone that needed a place to live out of the market, just for what? To sell it later for a higher price, driving prices further up? To rent it to people that need a place to leave, making it so that they lose wealth to you instead of owning it?
There's no need to delve into deep philosophical discussions of what is right and wrong, what is fair and isn't, and what did the communists do. The discussion is simple: don't speculate with housing.
You're manipulative with words ... "bad" contributions is something that's not a part of this discussion and buying a property to rent is not a bad contribution only for people with contradicting also selfish interests (I want to buy myself a house cheaply) ... maybe that's why you see "no need in going into deep philosophical discussions". Human rights is a nice buzzword used very loosely and it tends to mean whatever the user considers useful to themself at that moment, I recommend reading some fundamental bills and know what's in it.
> "bad" contributions is something that's not a part of this discussion
It is, the GP said that renting is a leech and you said "but what if I buy the house with money from my contributions". If doing something is bad (however you define bad) for society, it is bad no matter how many good things you did before.
> buying a property to rent is not a bad contribution
A lot of people have already explained how it can be a bad contribution. People need houses to live, and that's not optional. By buying a house to rent you're taking it out of the market, maybe from a family that wanted it to live in it. That family might need to move to a different, cheaper place (possibly offsetting the housing discount with extra expenses in commuting and transport) or might need to rent and pay money to you instead of investing it in their house. If enough people do the same thing they'll drive prices up in an area, and because they need to recover the investment they'll also put high rent prices, because people need housing and will end up paying increasing rent prices when there's no other option.
> Human rights is a nice buzzword used very loosely and it tends to mean whatever the user considers useful to themself at that moment, I recommend reading some fundamental bills and know what's in it.
I'll just leave you with Article 25, Universal Declaration of Human Rights [1]: Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.
Well I sold my house in Massachusetts, moved to California, and bought a new one this year and I definitely think the extreme liquidity of housing made it much easier, plus without the equity I doubt I would have been able to afford it. But yes obviously it’s not favorable for anyone who doesn’t already own.
I do think there is a place for a service like this even in a less frothy market. Like a trade in for a car, there’s definitely some percentage of people willing to accept a deal that is not the top one if it means they can cash out faster and with less hassle.
You make a common mistake about leveraged bets here in your claim about "gaining nothing".
Suppose house prices evolve from price p0 to price p. The market gains (or loses) p/p0 in that period. If you get a mortgage, you're borrowing money to buy at p0; at any point in time with a price p and total repaid r your total value is given by (deposit + r + p) - p0. You're in negative equity if (deposit + r + p) < p0. You're in the money if p > p0, but note that this isn't multiplying your investment by the market gain. Instead, it's exposing you to the absolute change in price. So suppose (deposit + r) = 40k ; p0 = 145k ; p = 190k. You're in the money for 40k + 190k - 145k = 85k, having invested 40k (roi=2.1). p1/p0 = 1.3 (<2.1), with your leverage (mortgage) having bought you more exposure to house prices. You can then liquify and re-lever back into the housing market, with a larger loan due to you larger deposit (and likely increased income). Historically this has worked very well for people as p has tended to be larger than p0. It does not work well if you end up in negative equity.
Although I mostly agree with your point except it being unnecessary emotional, I want to bring your attention to the fact that for some people having enough money to buy a house means that they contributed to the society and was rewarded with this wealth for it.
I agree with you. Moments like these are a mask off moment for HN. The North Star of the community is to get rich quick, no matter the cost. Just look at the Who’s Hiring threads, and 90% of them are fly by night SaaS looking to make a quick buck.
I agree with you 100% except I don't think that people trying to buy some houses to maintain and rent out are the problem. Mainly these huge corporations, esp. things like Tesla, and Arms corporations, that for decades have leeched from the middle class and gov contracts. Our gov is captured, dems can't keep a positive rating after trump because they wont pass anything meaningful.
Come on. You talk about SV types not knowing what they are doing and then offer this up as an explanation?
Real estate is going up in value for the following reasons:
- Almost 2 decades of QE and cheap loans
- More people working from home
- Boomers leaving the workforce and cashing in their retirement
- People leaving high cost of living areas
- Foreign investment
There is no conspiracy. As these things pull back, and they will in the next 5+ years, things will soften. What Zillow was trying to do is something a bit different but it doesn't matter because they ultimately failed.
So? Flip yourself then. Buy a 2 family unit, renovate it while you live in one of the units, and then flip when you're done. Repeat a second time. Now you're set. All of this is folded into your mortgage. If you're not a capitalist, you're not going to have a good time since no one is going to break your doors down to save you.
And where do you suggest an average person gets the money to do this? A lot of people cannot even afford to buy a home for themselves, let alone a 2 family unit.
I think they might know something we don't. Such as, for example, that loan rates are about to go up a lot, which if inflation is not "transitory" (which it isn't) they will.
They already did go up some. Most people can't count to save their lives, but $1M at 2.5% APR is about $4K monthly (borderline doable for quite a few folks on 2 incomes), whereas at 16% (historical peak) it's something like $13.5K (not really doable beyond the top 1%).
In spite of their large loss, this could prove to be a wise divestment under that scenario. If loans get a lot more expensive (which happened during Carter and then Reagan years, see "stagflation"), the housing market will tank right away and people will be desperate to lock in at least some of the gains they thought they had, creating excess supply. Not a good environment for flipping, especially at the mid- to low end of the market. The game of musical chairs seems to be coming to an end, and Zillow has just grabbed a chair. Three legged and busted chair, but a chair nevertheless.
Anyone whose main income is from other peoples rent has an incredible amount of explaining to do if they want to claim that they are anything but a useless leech.
> Anyone whose main income is from other peoples rent has an incredible amount of explaining to do if they want to claim that they are anything but a useless leech
What would you envision as the alternative to tenanted apartment complexes?
Let’s say you could wave a wand and outlaw rental housing as a business. Do you think the world would be a better or worse place?
Not GP, but wiping out the externalities of property being used as a capital investment vehicle instead of for its inherent utility seems like it would inarguably, in any rational market system, make housing more affordable. It's self-evident that it would be better for anyone without a vested interest in denying the housing needs of the many.
If there absolutely must exist a category of housing that is rented and not owned, that's where the state can step in. Housing, like healthcare, is a commodity with perfectly inelastic demand in the aggregate. Offering such a commodity up to the "free" market is irrational in any system except one that values ability to make a profit over human rights.
The old people with a reverse mortgage & the taxpayer subsidizing the associated losses.
People who put much of their excess savings into an appreciating home they planned to sell to fund their retirement as they moved elsewhere to somewhere cheaper, but now have a home which as a step function is worth far less.
People who would be quickly underwater if the property market tanks deciding to jingle mail, leading to blighted streets for those who stayed.
Local property taxes pay for schools, fire departments, police, etc.
As far as the state being a perfect provider to step in ... in the US about half of healthcare spending is fraud. That the bill is passed onto someone else is a big slice of that (along with ignoring antitrust laws, local CON laws, illegal to import pharmaceuticals directly as a consumer, etc).
I used to live near Chicago as a kid & recalled this
https://en.wikipedia.org/wiki/Cabrini%E2%80%93Green_Homes
"At first, the housing was integrated and many residents held jobs. This changed in the years after World War II, when the nearby factories that provided the neighborhood's economic base closed and thousands were laid off. At the same time, the cash-strapped city began withdrawing crucial services like police patrols, transit services, and routine building maintenance. ... On July 17, 1970, Chicago police patrolman Anthony N. Rizzato and Sergeant James Severin were shot and killed by gang members while patrolling community housing for an all-volunteer "Walk and Talk" project. As the officers proceeded across the Cabrini–Green baseball field, the assailants opened fire from an apartment window. The purpose of the shooting was to seal a pact between two rival gangs."
Which land will the free or subsidized housing go on? Will the people spending a grand or two a month in property taxes want the elevated crime levels near their own front door?
You make a lot of valid points in the first half there, but unfortunately to transition away from housing being an investment and towards it being an amenity, it necessarily means affecting those who choose to treat it as an investment - and frankly, all investments come with some risk. But with all your talk of "old people", I think it's fair to point out that this need not happen overnight, and there should be ample warning for retirees to divest of their investments to the private sector gamblers, for the most part.
>People who would be quickly underwater if the property market tanks deciding to jingle mail, leading to blighted streets for those who stayed.
I really don't understand this point. If it's a house where they want to live, they would just stay. If they can't afford the mortgage, yes, they can leave and buy any of the other now cheap property on the market, and the financial institution that took on the risk on lending can either sell it back to them or to someone else. If they don't live there, they're literally part of the problem of speculators treating houses as assets rather than housing, in which case they should be selling it to whoever actually wants to live there, yes.
Now as for the second part:
>As far as the state being a perfect provider to step in ... in the US about half of healthcare spending is fraud.
I feel like you choosing the only first world country with primarily privatised healthcare kind of strengthens my point, not sure what you're getting at here.
>Which land will the free or subsidized housing go on?
It shows just how badly treating housing as a capital asset rather than a public utility has corrupted how people discuss housing, that when I suggest that the government would handle any absolutely necessary rental housing, you immediately jump to low income people. And I don't blame you for thinking that, but that's basically the opposite demographic of who rental property should be for.
There's no inherent reason that low-income people should be renting rather than owning - they have no particular need for short-term housing. The only reason those two things are associated is because housing is treated as a capital asset.
Rather, the only people who have reason to rent rather than own are those who have a short term need for housing, which is going to be largely moderate-income people who move around for work, as well as students aiming for a higher-income job.
There are other systems, of course, where no one can claim physical ownership of something like land, and everyone rents - like Singapore's public housing model. Singapore's model, by the way, sidesteps the rest of your concern:
>Which land will the free or subsidized housing go on? Will the people spending a grand or two a month in property taxes want the elevated crime levels near their own front door?
Where will lower income people go? The same places everyone else goes. The only reason you have "bad" neighborhoods is because you've shoved all the economically disadvantaged people into one spot, and allowed the wealthy to cloister themselves into enclaves where the issues with poverty are out of sight and out of mind. As I said, Singapore's public housing distributes income levels much more evenly, and shows major benefits from it.
It's actually pretty simple to break it down if you try to think about it. Rent seeking is evil when the renters absolutely need the service and cannot afford ownership. Otherwise, it's a service that some find useful. Home rentals would be awesome if it was only for vacations or because someone didn't feel like dealing with maintenance. In reality, everyone needs a place to sleep at night and many cannot afford it. The people who make it unaffordable to own a home by buying up all inventory and then renting it back are absolutely leaches. Comparing camera equipment rentals to home ownership likewise lacks morality.
In the San Francisco for example, the minimum wage is $16.32/hr or ~$33K/year. The median price per square foot is $1000/sqft. A person earning minimum wage will never be able to buy property in San Francisco. Instead they're forced to spend most of their income on rent creating a cycle of poverty by preventing property ownership & wealth accumulation. The property owning class of the Bay Area desperately depends the poverty class yet burns the ladder up. We complain about the homelessness and crime yet trap people into poverty by blowing up every bill that would create affordable housing.
I will absolutely cheer for the failure of any company looking to profit from exacerbating the problem. I hope you can now understand the difference between renting a camera and being permanently unable to afford a place to sleep.
> It's actually pretty simple to break it down if you try to think about it. Rent seeking is evil when the renters absolutely need the service and cannot afford ownership.
Do they absolutely need the service? I assume you're going to give an example where someone buys out the market so they can control the price like a monopoly. If so, I'd like to point out controlling the market like a monopoly isn't the same description as "rent seeking is evil if you're selling a service people need". People need many things that can only be provided by an expert. Are they evil if they don't provide their service at cost too? If not what's the difference? Or was my assumption of your example wrong from the start?
> Otherwise, it's a service that some find useful. Home rentals would be awesome if it was only for vacations or because someone didn't feel like dealing with maintenance. In reality, everyone needs a place to sleep at night and many cannot afford it. The people who make it unaffordable to own a home by buying up all inventory and then renting it back are absolutely leaches. Comparing camera equipment rentals to home ownership likewise lacks morality.
I'm in agreement with you, but this nuance is *very* important, and you're the first to actually explain in detail exactly what's wrong.
> In the San Francisco for example, the minimum wage is $16.32/hr or ~$33K/year. The median price per square foot is $1000/sqft. A person earning minimum wage will never be able to buy property in San Francisco. Instead they're forced to spend most of their income on rent creating a cycle of poverty by preventing property ownership & wealth accumulation.
True, but a gross oversimplification of all the factors that go into something like this. The hyperbole becomes disingenuous with the reasonable expectation that not all parties are aware of the full content. Saying rent seeking makes you a leach, doesn't look like hyperbole. It looks like an assertion that owning property is immoral. This argument is going to drive people away from the realization that people are abusing the rules of the game at the expense of people who now can't even begin to play.
> The property owning class of the Bay Area desperately depends the poverty class yet burns the ladder up. We complain about the homelessness and crime yet trap people into poverty by blowing up every bill that would create affordable housing.
I suspect the intersection of the people opposing anything affordable aren't the same who actually complain about the problem. Here I'm trying to not equate the people complaining about the problem, or the injustice, from the people complaining because they're angry and need to complain. Or those complaining about the inconvenience of having to see someone poorer than they are.
> I will absolutely cheer for the failure of any company looking to profit from exacerbating the problem. I hope you can now understand the difference between renting a camera and being permanently unable to afford a place to sleep.
Me too, but it seems a bit unfair to state it like this. You're the first person to actually explain these real problems in enough detail to convey the idea and how unfair it really is. I say this because you didn't offer to explain deeper, or invite additional participation. The only thing I was able to parse out of this was a final mic drop because we both know you're right about it.
You're being disingenuous. All of those things you listed fulfill a temporary or geographically localized need, and are very short term. On the other hand, people often spend an entire generation in one apartment. Those categories are wholly unalike each other, and it's clear because the category of actually short term housing also exists, hotels.
Likewise, long term car rentals exist, they're called leases.
The point I was trying to make, so I assume the person you replied to see it the same. Is that no one else really attempts to explain the context around the assertion. Everyone previous is happy to blame people who are winning the game, labeling anyone who's not losing as a cheater. No one else is willing to explain why or how they're cheating. Which, if you don't know all the rules, and exploits looks like complaining not about the exploitation, but about even playing. So a fair interpretation is that every game must be cheating. It's not disingenuous to not already know the ways people try to control others to make some money. It's disingenuous to pretend like you've already made a point you haven't.
The assertion is that rent seekers are "leeches", providing no value, while extracting value for themselves. It's very hard to prove the existence of a negative. That's the context. Note that no one said "cheating", that's context you read in yourself.
It's interesting that you haven't made a single attempt to provide an actual counterpoint of your own, of what value rent seekers actually provide, especially since you're complaining that no one else is explaining their position. "No one" attempts to explain, including yourself?
People are not required to live in the biggest & most expensive cities in the world. Doing so is a premium good. Removing the pricing signal just turns everything into a lottery and/or lowest common denominator practices demonstrating the tragedy of the commons. Sorry your neighbor has mental health issues, uses meth and screams as they throw stuff against the wall at night. Hope you got a good night sleep!
When I got started on the web I moved a couple states over to live with a friend who was going to college. We lived in a mobile home & our rentier extractor landlord captured like $110 a month. I was able to spend little time doing work I didn't want to do in order to pay rent & could spend a lot of time learning.
High rents can offer some level of exclusivity and give people an opportunity to express their values, what they value, and how much they value it. There's a reason that most people who are in subsidized public housing end up wanting to move away if they can afford to.
> The assertion is that rent seekers are "leeches", providing no value, while extracting value for themselves. It's very hard to prove the existence of a negative. That's the context. Note that no one said "cheating", that's context you read in yourself.
You wouldn't be proving a negative. The assertion is that doing so (extracting value without providing any) is bad requires that bad thing to be stated. It's bad because opportunity cost, it's bad because people have to exchange currency for goods or services, it's bad because houses being in possession of money is itself immoral. These aren't negatives that need to be proved. As for cheating, what should I call acting so that others don't get a chance to participate?
> It's interesting that you haven't made a single attempt to provide an actual counterpoint of your own, of what value rent seekers actually provide, especially since you're complaining that no one else is explaining their position. "No one" attempts to explain, including yourself?
I don't have an assertion I want to make. Nothing other than to point out the problematic rhetoric. As an example, pointing out that 2+2=6 is invalid, or unconvincing because if you only have 1,2 and another for 3,4 can't reach 6. Does contribute, because the assertion that 2+2=6 is bad to leave unchallenged. Just like me making an assertion that 2+2=5 which would also be wrong. I don't know enough about the housing market in CA to make an any argument I'd want to stand behind. But I'm willing to say, just owning and renting property isn't enough to call them malicious, leaches, nor shitty.
That's the core of the issue, tools have elastic supply and demand. A tool rental business meaningfully assists in matching the two - it's very likely a tool I rent would not exist otherwise, or if it did, it's because I financed it, a much greater expense for me for little gain. I wish there was more tool and car rental.
Housing, for the most part, does not do this. New housing is rare, and I can't walk away from that market, or even reduce my usage without severe loss of quality of life.
So yes, the only thing a landlord did for me is have more money than me when I was born, which if you look closely, isn't actually a service at all.
Being a landlord actually involves a lot of work and risk. If it were free money, everyone would do it and it wouldn’t be free money anymore. I don’t have the nerve or free to be a landlord myself, but I’m sure I own some small parts property management companies via the index funds I own shares in.
As someone who previously worked for, and is also the child of, landlords, I can attest to the fact that, yes, there is some work and some risk, but you're wildly overselling it.
The reason "everybody" doesn't do it is that in order to do it, you have to already have money (even if you can do it on a loan, the terms won't be favorable unless you have significant starter capital). At that point, it's basically free money, yes, to the extent that you can pay someone to do all the actual work for you and still make a comfortable income.
Yes, you need capital, or at least good credit. Property management companies are hella expensive, and in this labor market hiring a super is difficult, so...you are going to wind up doing a lot of things on your own, the most important of which is screening tenants to avoid credit risks according to whatever the local laws are that discourage such screening.
No thanks. A lot of people are getting out of it, or finding it is often better to keep a house empty and just record the missing tenant as a loss to write off than risk renting to tenant who is anything but perfect. The future of renting is from big companies who have enough scale and experience to manage the risk. Small-scale private landlords are on the way out.
The immorality of such rent-seeking not with standing, it is just not a very good way to make money unless you are really. diligent or get lucky.
Are you asking why, in a system that its supporters claim is a meritocracy, it wrong for it to be easier for the rich to get richer than for the poor to achieve parity, given equal merit? Is that a rhetorical question, or are you about to argue in favor of the ethics of feudalism? Because bridging that ethical divide would take more than a simple hacker news comment.
edit: Ah, to more directly address you point earlier, and lay it out in simple ethical terms: withholding essential goods (housing) from others is a moral wrong according to consequentialist ethics systems. Doing things with a motivation of greed (profit) is also considered a moral wrong in intent-based ethics systems. The agreed upon axiom that they contribute nothing in return means there is no moral good to outweigh the moral wrong in either system, so in combination it is a net moral wrong.
Oh boy, this jumps around a lot and very little is very deep so my answers will have to jump around a bit to make sure I didn't miss anything.
> Are you asking why, in a system that its supporters claim is a meritocracy,
who's made these assertions, and where? Not anywhere in the thread's I've read...
> it wrong for it to be easier for the rich to get richer than for the poor to achieve parity, given equal merit?
Is it wrong though? Should everything be equally as hard? Or is it permissible that some things should be harder than others. And where/how do I draw the lines to know when it's unfair?
> Is that a rhetorical question,
It was, I even said as much. I'd ready to agree, but I can't until you actually make a conclusion.
> or are you about to argue in favor of the ethics of feudalism? Because bridging that ethical divide would take more than a simple hacker news comment.
I'm not trying to argue anything, I'd like like try and tease out arguments worth considering.
> edit: Ah, to more directly address you point earlier, and lay it out in simple ethical terms: withholding essential goods (housing) from others is a moral wrong according to consequentialist ethics systems.
Perhaps, but this evaluation is shallow enough to be useless for me to apply in the reality in which I live. What about the consequence of destruction of value from freely allowing anyone without an interest from living off your property? But they might die, and life is more important than money? Sure, but what about in an area where they wouldn't die, then is it moral? But people deserve to be comfortable! So do I need to provide heat and water, and other utilities? To what extent? Any conclusion that adds more questions than answers is useless. Ethics aren't scientific research, answers that only create more questions aren't useful...
> Doing things with a motivation of greed (profit) is also considered a moral wrong in intent-based ethics systems.
This is new to me, I assumed it was amoral. What makes it immoral?
> The agreed upon axiom that they contribute nothing in return means there is no moral good to outweigh the moral wrong in either system, so in combination it is a net moral wrong.
So there is an example where the net morality could come out in the positive?
> This really shouldn't need to be spelled out.
And... we're back the the original problem that I tried to call out from the beginning. Anyone that doesn't already know what you know, and preemptively agree with you is the problem? Now who's arguing for feudalism if you don't already have knowledge and power, you're undeserving?
One time I had a client who thought it was "unfair" to pay me just because I knew how algorithms worked. He was quickly fired, but he did not find inheriting his family owned business unfair. He did not find his ranking boost which gave him outsized profits unfair.
There is no way to go back in time to make everything fair from some arbitrary starting point. All you can do is your best to do your best.
Pricing can lead to unequal outcomes, but it at least provides a signal that you are on the right track or not.
A quest for universal fairness can only work by lowering people rather than by promoting them doing what they are best at.
Anyone seeking universal fairness & equal outcomes in all aspects of life should read Kurt Vonnegut's Harrison Bergeron as many times as required to change that mindset.
http://www.tnellen.com/cybereng/harrison.html
"THE YEAR WAS 2081, and everybody was finally equal. They weren't only equal before God and the law. They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General."
>Be kind. Don't be snarky. Have curious conversation; don't cross-examine. Please don't fulminate. Please don't sneer, including at the rest of the community.
>Comments should get more thoughtful and substantive, not less, as a topic gets more divisive.
Moreover, you've complained about no one providing explanations (they have) while providing none of your own.
There's no point in responding further to your questions, since you're providing no substance of your own, but have a very short list of what you should google for context, in the event you're not trolling, and are just somehow trying the socratic method while ignorant of philosophy:
>who's made these assertions, and where? Not anywhere in the thread's I've read...
The topic is Capitalism, read what its supporters say.
>This is new to me, I assumed it was amoral. What makes it immoral?
Virtue ethics, Judeo-Christian-influenced philosophy, some deontologists.
While you're at it, maybe look up logical induction. I recall Philosophy Tube [1] has a good video on it, if you're so inclined.
Zillow seeks to sell 7k homes for $2.8B after flipping halt - https://news.ycombinator.com/item?id=29081118 - Nov 2021 (521 comments)
It seems the current article adds significant new information, so we won't treat it as a follow-up (or dupe).