When We Talks
Technology

After a rocky 2022 for real estate, here are 5 trends to watch for Redfin and Zillow – GeekWire

[ad_1]

Redfin CEO Glenn Kelman (left) and Zillow Group CEO Rich Barton (right). (Redfin and Zillow Photos)

The once high-flying real estate market sputtered in 2022, dragging many real estate tech companies down with it.

The sudden swing pushed companies to cut costs, which included layoffs and shifts to their business models. Seattle giants Zillow Group and Redfin both trimmed headcount and shuttered their home-flipping iBuying operations.

While these companies may face similar headwinds this year amid sluggish transaction and mortgage volumes, there may be glimmers of hope in the form of smaller losses and increased revenue from new services.

Here are five trends to watch in 2023 for Zillow and Redfin.

Impact of transaction volume

After Redfin winds down its iBuying operation, it will make most of its money by charging listing fees when a home sells through the platform. Most of Zillow’s revenue will come from Premier Agent, its advertising service for real estate agents to pop up in front of prospective home buyers.

Both of these segments thrive in hot markets, when buyers and sellers are feverishly inking deals, but struggle when the economy cools.

In 2023, many would-be buyers may remain sidelined by higher mortgage rates, still-high home prices, and the likelihood of a recession, Redfin Deputy Chief Economist Taylor Marr wrote in a blog post. He predicts 16% fewer home sales in 2023, with a total of 4.3 million homes sold.

“People will only move if they need to,” he wrote.

Redfin brokered 18,245 transactions in Q3 2022, down 17% from the same period the year prior. Zillow’s Premier Agent generated revenue of $312 million, down 13% from the year-ago quarter. Both companies are forecasting even lower volumes in Q4.

These revenues may continue their downward trajectory until interest rates ease and buyer sentiment improves.

But not everyone is convinced the housing market will continue its decline in 2022. Bank of America Securities Analyst Curtis Nagle wrote in a recent research note that he predicts housing markets will “trough” in early 2023, adding he is “confident that growth can return to double-digits in 2024 on improving affordability.”

Nagle raised his Zillow price target to $42 from $22, upgrading his position from “Underperform” to “Buy.”

In the past year Zillow and Redfin have seen their stock prices fall 28% and 84%, respectively.

Existing homes on the balance sheet

Redfin began winding down its home-flipping business in the third quarter of last year and CEO Glenn Kelman said the company expects to own less than $85 million in homes by the end of January, then completely rid its inventory of homes by the end of the second quarter.

Wedbush Securities analyst Jay McCanless expressed skepticism. He said it “may take longer” because of Redfin’s “cautious outlook about potential declines in national housing activity” in Q4 and throughout 2023.

This could be exacerbated by shaky investor sentiment. Redfin economist Marr predicts investors will purchase about 25% fewer homes than a year earlier. This shift in appetite for homes may push Redfin and other remaining iBuying businesses to sell their homes at a steep discount, furthering losses, or to hold on to homes longer than expected.

In response to questions from analysts during Redfin’s Q3 earnings call, Kelman defended the company’s position to liquidate its homes. He said other iBuyers sold just 40% of the inventory they bought in Q2, compared to Redfin selling 67%. “We have a really large head start on liquidating our inventory,” he added.

Total revenue drop after ditching iBuying

Departing the home-flipping business relieved a large financial burden for Zillow and Redfin, but it may also dent their overall revenue. In November, Wedbush analyst McCanless wrote his firm anticipates Redfin will see a “meaningful drop in revenue dollars” for 2023.

Here’s a look at how much iBuying contributed to Redfin and Zillow’s overall revenues at the time they announced their decision to abandon the practice:

  • Nearly half of Redfin’s revenue in Q3 came from RedfinNow, selling 530 homes at an average sale price of $550,903.
  • Zillow’s home-buying segment brought in $1.1 billion in Q3 of 2021, accounting for more than 60% of its total revenue for the quarter.

Lagging mortgage revenues

In recent years, both Redfin and Zillow have expanded their business offerings to offer loans to home-buyers. In 2018, Zillow acquired Mortgage Lenders of America, while Redfin bought Bay Equity Home Loans last year.

But with mortgage rates still hovering around 7%, it is likely that revenues from this sector of their businesses will continue their declines throughout the first half of 2023.

  • In the third quarter, Redfin reported mortgage revenue of $48 million, down from $53 million the previous quarter. It is forecasting revenues between $29 million and $32 million for Q4.
  • Zillow generated $26 million in revenue in its mortgage business, down from $70 million, or nearly 63% from the year-ago period. It forecasts revenues between $15 million and $20 million in Q4.

“Big weekly swings in rates continue to occur as well,” Zillow CEO Rich Barton wrote in his Q3 letter to shareholders. “This rapid volatility has impacted our funnel as our connections decline while buyers decide whether they want to be on, or off, the sidelines in this current market.”

Mortgage startups including Tomo, which has a presence in Seattle, and Better laid off staff in 2022.

Renewed focus on add-on services

Since moving away from home-flipping, both Zillow and Redfin launched new products aimed at assisting real estate agents and driving web traffic.

Late last year, Zillow bought VRX Media, a Milwaukee, Wis.-based marketing service to sell media content to agents, such as aerial drone photography, virtual staging, 3D tours, and high-definition images.

This new service will be included in Zillow’s new umbrella brand called ShowingTime+, a suite of real estate listing services. Barton wrote in his Q3 letter that the launch of ShowingTime+ was part of a broader effort to “access listing agent wallet share through both software and marketing spend.”

Redfin bolstered its listing services last month, launching a service that lists a property’s zoning data, and this month added energy cost estimates. The new feature is part of a partnership with Zoneomics, an AI tool that scours government codes and laws. The company also put an increased focused on its online rental marketplace, following its acquisition of RentPath in 2021.

“Selling property managers both the fish and the fishing poles lets us form more lasting client partnerships with more than double the revenue per client,” Kelman said.



[ad_2]

Source link

Related posts

Former aQuantive exec launches BaseHubs, an app to connect military personnel to communities – GeekWire

Effie Weber

After Seattle launch, personal assistant service Yohana goes nationwide to help more busy families – GeekWire

Effie Weber

Pioneer Collective moving longtime co-working space to Seattle’s Ballard neighborhood – GeekWire

Effie Weber