Zillow Offers, the division the company launched three years ago, appears to have badly misjudged the market and racked up $380 million in losses last quarter.
“The unpredictability in forecasting home prices far exceeds what we anticipated,” said Rich Barton, Zillow’s co-founder and CEO, on Tuesday. “Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”
Zillow Offers, a business known as iBuying, was once billed as the future of the company. But it seems Zillow’s algorithm was too aggressive — the company reportedly overpaid for houses it ultimately had to sell at a discount. And while rivals like Opendoor and Offerpad were slowing down their purchases, Zillow ramped up.
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As was widely expected, the central bank announced it would wind down its aggressive emergency bond purchases by about $15 billion a month, starting this month. At that rate, the Fed’s balance sheet will be back to its pre-pandemic level by June.
- This all goes back to the Fed essentially throwing itself on the economic and financial grenade of the pandemic back in March 2020. Markets were tanking as lockdowns began, millions of jobs were lost and businesses shuttered.
- So the Fed got to work, creating a double-barrel approach to economic stimulus. It dropped interest rates to near zero and began buying up loads of government debt — to the tune of about $120 billion a month in Treasury bonds and mortgage-backed securities.
The Fed is hardly ripping off the stimulus Band-Aid: It will maintain its target interest rates near zero for now, and it left the door open to more bond purchases if economic conditions change. Our boy Jay Powell, aka the Silver Fox, aka Jay Money, aka Fed Savage, has been signaling this plan for months so as not to panic the sensitive souls on Wall Street.
There was no immediate “taper tantrum” in the market following the Fed’s announcement. The major stock indexes even inched higher and closed at fresh record highs. CNN Business’ Anneken Tappe has more.