Is Zillow going to crash the housing market? (Podcast)

Zillow’s iBuying exit spooked market watchers

Zillow officially exited the iBuyer market (home to Opendoor, Offerpad, and other similar homebuying solutions) late last year, taking a $421 million loss in the process. In a matter of days, the move saw the company’s stock drop 50% and forced a significant reduction in its workforce.

It also spurred economic concerns from many.

Did Zillow’s exit signal a turn in the housing market? Would the company offload its properties at a steep bargain and send home prices crashing? Was the bubble about to burst?

With skyrocketing home prices and the housing crisis just barely in the rearview, it’s no surprise these worries arose. But according to Arjun Dhingra, mortgage expert and host of The Mortgage Reports podcast, they were – and still are – unfounded.

Listen to Arjun on The Mortgage Reports Podcast!

Why Zillow won’t crash the housing market

Zillow’s recent iBuying exit “came across in the media as cataclysmic and really, really bad news,” Dhingra said.

“A lot of crash bears, as we like to call them, have been waiting for the housing market to basically invert or for prices to come crashing back down. They immediately pounced on this news and started putting up videos and all kinds of content saying that housing is going to crash and it’s the end of the housing run as we know it, but that was not the case.”

Are you thinking about buying a house or refinancing? Just want to make sure your home’s value is protected? Here’s why Dhingra says Zillow’s retreat from iBuying shouldn’t be a concern.

1. It’s a drop in the bucket

Zillow was definitely left sitting on some inventory when it shut down its iBuying program. But according to headlines, it was only about 7,000 houses total. In a market that’s nearly 5 million homes short of demand, that’s not nearly enough to make a difference, Dhingra says.

“When we look at the grand scheme of things and the entire landscape, 7,000 homes is not a lot of homes, especially when we talk about how spread out they are in various markets,” Dhingra said on a recent podcast episode.

Given the supply shortage, it’s also likely these homes will be bought up very quickly – if they haven’t been already. And while Zillow will likely sell them for less than the company had initially projected, they likely won’t be sold at so steep a discount it would impact larger price trends.

“It’s not going to be this big dragging down of national prices in all housing markets or the broader economy,” Dhingra said.

“We won’t see that happen. Unlike 10 years ago, homes were falling into foreclosure or short sale, being given back to the bank, or being sold at such a heavy discount – in some cases 50% or 60% less than what the outstanding mortgage balance was. That’s not the case here.”

2. Mortgage practices are better than in the 2000s

Poor lending practices were a big contributor to the housing crash. Borrowers and their finances were not being properly vetted, and when the economy went south, they no longer had enough cash to make their payments.

As Dhingra puts it, “10 years ago, people were able to borrow money by proving virtually nothing. They only needed to have a social security number, and in some cases, they didn’t even need that. I used to joke often that a dog could have gotten a mortgage back then.”

Now, mortgage lenders are much more careful in who they loan money to.

Lenders check employment histories, bank statements, pay stubs, tax returns, and assets, and they only lend to borrowers who they’re confident can make their payments for the long haul.

“People have to have so much skin in the game, and the criteria that they have to meet is so much more strict now,” Dhingra said. “Their income and assets are sufficient that if they had something cataclysmic happen – losing their job or some type of other shock to their household – they would be able to continue to afford payments.”

Homeowners also have a lot more equity than during the housing crisis. And, as a result of the crash, banks and lending institutions are more likely to help when things get tough. They offer forbearance (like they did during the COVID–19 pandemic), deferral, loan modifications, and other options when homeowners are in a pinch.

A Zillow problem, not a housing problem

All in all, Dhingra said, “This was a Zillow problem; not a U.S. housing problem,” and any impacts of the company’s iBuying exit have already been felt and were likely minimal.

“So if you’re a U.S. homebuyer, and you’re looking to get into the market, the Zillow news is not going to affect you negatively,” Dhingra said. “And if you are a current homeowner looking to either refinance or just protect the value of your assets, the Zillow news is not going to affect you negatively either. It’s all going to be fine.”

Want more mortgage guidance as you prepare to buy or refinance a home? Get in touch with a local mortgage advisor today.