Zillow Back on Front Burner, Black Swans and Other Things

 Zillow spent last year aggressively expanding a home-flipping operation designed to make the $2 trillion U.S. Real Estate Market better for consumers, until a bad bet on home prices shut it down.

To sell the thousands of homes a little known truth about the business, called "iBuying" popped up.  "Institutional Buyers" were the biggest names in global finance.

Bloomberg News analysts came up with more than 100,000 property records show that Zillow and the other buyers, Opendoor and Offerpad were selling thousand of homes to the new landlords on the block: KKR, Cerebus, Blackstone and many other large hedge funds and institutions.  Those properties were never listed.  That caused the squeezing out of average buyers in the competitive housing market.

Two out of 10 homes on average in the US went to iBuyers, double that in Sun Belt and Metropolitan areas and EVEN GREATER in communities of color! A diverse range of political voices from the Biden Administration to Conservative talk show host Tucker Carlson have blamed institutional landlords of crowding out regular families.

iBuyers have resonated well during the Pandemic: no showings, no open houses, no waiting for lender approval or appraisal, all cash and quick closes.  All have created a new off the grid market for sales the average buyer is left out of.

FED TAKES AWAY THE CANDY BOWL    

The Federal Reserve has decided that the economy is too hot, inflation too high and employment tight.  So they are reducing and eliminating bond purchases and raising interest rtes.  At first the forecast was for Two rate increases in 2022, then Goldman Sachs forecasted Four rate increases in 2022.  Assets sales will occur as the $8-9 trillion balance sheet matures, with sales a surety in the future.  That will tighten money supply and expected raise in the 10-year Treasury to 2% or higher raising mortgages and credit card rates and the cost of borrowing across all sectors of the economy (What will a 4% mortgage do to the housing market?).  The US$ will rise creating higher costs for our exports which leads to slowing international sales and a slowing down in the economy.  Speculation will stop or slow down and the unique asset plays as Bitcoin, NFTs, SPACs and the like will certainly see less speculative buyers (SELL,  sell to who, you were the only buyers.  Don't worry there is always a buyer looking to catch a falling knife).  Stocks with higher dividends and money market funds will compete with little or no risk of capital.  It is already being seen in the decline in SPACs below their IPO prices and the 20% drop in Bitcoin.

No this is not a Black Swan!  The Back Swan is an event not in the news, so Putin, China, interest rates and the economy are not Black Swans.

A Black Swan is an unknown and unexpected event, so keep your cash reserves high.  Black Swans occur when markets go to excesses beyond averages or standard deviations.  Boy have we been on a run for the past several years.  Then BANG, A Black Swan.  Myron Scholes and Robert Merton came up with a financial formula that won them a  Nobel Prize in Economics.  They created a fund, Long Term Capital, that made 21%, 43% and 41% in the first three years then lost $4.6 billion in less than 3 months and put the financial markets world-wide on the edge of a precipice.  Again the Federal Reserve Calvary came to the save with 14 banks and $3.65 billion to liquidate the fund.

REMOTE WORK FROM HOME

Remote work is changing the labor market and the housing market in numerous ways.  It is considered the largest change in American working and living conditions since WWII.

The latest job report had payrolls gaining 199,000 missed expectations of 249,000. The big surprise came as millions of workers voluntarily left their jobs.  The Great Resignation is ON!  Return to the office?  No I quit!  Work from home for the past two years without a drop in productivity.  Jobs specified as remote get 300% more applications than jobs that are not.

Since people can work from any where the move is on to. affordable locations.

In the top 50 of move to states are: Wisconsin, Florida, Nevada, North Carolina, South Carolina, Idaho, Florida to just name a few.  In the top Move From is California!



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Silicon Valley Real Estate Newsletter

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