Morning Report: Zillow exits the iBuying business.

Vital Statistics:

S&P futures4,617-6.2
Oil (WTI)81.86-2.13
10 year government bond yield 1.56%
30 year fixed rate mortgage 3.30%

Stocks are lower as we await the decision out of the Fed. Bonds and MBS are flat.

The Fed decision is set for 2:00 PM EST. While no one expects the Fed to raise rates, the consensus seems to be that the Fed will begin to reduce its purchases of Treasuries and mortgage backed securities.

The economy added 517,000 jobs in October, according to the ADP Employment Survey. Leisure / hospitality and transportation had the biggest gains. The Street is looking for 400,000 payrolls in Friday’s jobs report.

“The labor market showed renewed momentum last month, with a jump from the third quarter average of 385,000 monthly jobs added, marking nearly 5 million job gains this year,” said Nela Richardson, chief economist, ADP. “Service sector providers led the increase and the goods sector gains were broad based, reporting the strongest reading of the year. Large companies fueled the stronger recovery in October, marking the second straight month of impressive growth.”

Mortgage applications decreased 3.3% last week as purchases fell 2% and refis fell 4%. “Mortgage rates decreased for the first time since August, as concerns about supply-chain bottlenecks, waning consumer confidence, weaker economic growth and rising inflation pushed Treasury yields lower,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Most of the decline in rates came later in the week, which is likely why refinance applications declined to the lowest level since January 2020, and the overall share of activity fell to the lowest since July 2021. Government refinance applications fell for the sixth straight week, as it becomes evident that an increasing number of borrowers have already refinanced.”

Zillow was down 16% yesterday after reporting disappointing Q3 results and announced that it will wind down its iBuying Homes segment. The company’s third quarter results included a $304 million writedown for homes bought in the third quarter that are worth less than current selling prices. The company expects another $265 million in writedowns in the fourth quarter. It will also lay off a quarter of the workforce in the iBuying segment.

Zillow was able to convert only about 10% of its bids into actual sales. Zillow kept its fee a secret, but it was more or less around 7.5%. Since the typical home seller is mainly responsible for the two realtor’s commissions of 3%, many must have considered the extra 1.5% to not be worth the hassle of letting Zillow handle the staging and final maintenance.

Given the rapid home price appreciation over the last year, it is hard to see how they lost money on buying homes, unless they really missed the seasonality aspect of home prices. Regardless, this is the first data point that indicates that home price appreciation is slowing.

New York State has extended CRA requirements to non-banks. I do wonder if redlining is really a thing in this age of “push button, get mortgage.”


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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