Inability to Forecast Prices

Here's the hoot of the day: Zillow Quits Home-Flipping Business, Cites Inability to Forecast Prices

Real-estate firm Zillow Group ZG is exiting from the home-flipping business, saying Tuesday that its algorithmic model to buy and sell homes rapidly doesn’t work as planned.

Chief Executive Rich Barton on Tuesday said Zillow had failed to accurately predict the pace of home-price appreciation, marking an end to a venture the company once said could generate $20 billion a year.

“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,” Mr. Barton said.

Zillow, which will release earnings later on Tuesday, said it would report that its home-flipping business, Zillow Offers, lost $381 million last quarter, as measured by earnings before interest, taxes, depreciation and amortization. That resulted in a combined Ebitda loss of $169 million across all of Zillow. The company said it also plans to cut 25% of its workforce.

Case Shiller Home Price Index

What a Hoot!

Home prices are up about 20% year-over-year. Every major market is surging. And Zillow manages to lose money flipping homes.

Question of the Day

What does this say about Zillow home price estimates? Just how bad are they? 

Also consider the Fed's inflation expectations model. Lacy Hunt and I discussed that in MishTalk TV #4 With Lacy Hunt.