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Zillow Offers’ Demise May Relieve Phoenix Homebuyers
November 17, 2021

Zillow Offers’ Demise May Relieve Phoenix Homebuyers

by The CE Shop Team

Arizona REALTORS® and Homebuyers Rejoice!

On 11/2/21, Zillow announced that they're shutting down their iBuying program, Zillow Offers, citing the unpredictability in forecasting home prices had exceeded what the company anticipated and scaling the program down would result in too much volatility. The company reported a third-quarter net loss of over $328 million alone, all related to its homebuying unit.

“Ultimately, I think [Zillow Offers] was a great test for them, and now they’ll hopefully go back to their roots of what got them to where they are today, which is easy access of knowledge and information,” said Chris Karas, Phoenix REALTOR® and CEO of The Karas Group, in an interview with AZFamily.com. “There is only so much information you can get from an algorithm and robot versus human interaction.” 

As for other iBuying programs, Zillow’s announcement came as a relief. After all, one of the largest competitors was essentially dropping out of the “arms race” that currently makes up the iBuying market. But how did Zillow Offers impact the overall real estate market, and what should Arizona agents expect to see next?

Zillow announced that they're shutting down their iBuying program Zillow Offers

Zillow’s Effect on the U.S. Real Estate Market

Zillow launched Zillow Offers in 2018, and Phoenix was one of the first real estate markets the program entered. Multi-billion-dollar companies like Zillow have the tech resources to purchase houses quickly via iBuying, which has gained traction in recent years. 

These iBuyer programs target affordable homes with an average home price of $320,000, which is why cities like Phoenix are seeing high rates of home purchases. Beyond affordable housing, investors and iBuyers are also targeting cities like Phoenix based on population growth.

The median home price in Phoenix is $404,300, and Phoenix’s population growth is exploding. The Valley of Sun ranked first in U.S. population growth as the fastest growing city in the country for the fifth year in a row.

Now, it should be said that while homebuyers and real estate agents are concerned, the iBuying market only accounts for 1% of residential sales. Compare this to the $36 trillion residential market, and iBuying’s market share seems insignificant — even though the impact is very real.

How Has iBuying Impacted Phoenix’s Real Estate Market?

On a national scale, the iBuying market doesn’t raise concerns, but when you take a closer look at key markets like Phoenix, iBuying accounts for 5% or more of residential transactions.

In Q1 of 2021, iBuyer purchases accounted for 949 home purchases, and they accounted for 2,035 home purchases in Q2 of 2021 with a median purchase price of $391,650    (which is only around $300 more than the median purchase price of all sales in the same market during the same time frame). Phoenix’s current active listings comprise just over 6,000 available homes.

Beyond iBuying’s efforts, investment firms like BlackRock have also impacted the local real estate market, purchasing 20% of homes in Phoenix alone. These firms are also investing in rental properties and have been snatching up apartment complexes since 2018, spending up to $898 million in the Phoenix metro area alone.

Due to the booming market in conjunction with low supply, Phoenix’s home prices are expected to increase in 2022, and some forecasts project pricing up to $500,000 for a typical home in Phoenix by summer 2022.

With Zillow exiting the market, competitors can now swoop in to grab more market share. iBuyers are responsible for around 10% of all listings in the Phoenix market, with Zillow leading in market share. However, it’s reported that the company is trying to offload 7,000 of these homes to institutional investors for about $2.8 billion. Only time will tell how this offloading will impact Phoenix homebuyers directly.

How has iBuying impacted your market? Are you a fan of these types of programs, or are you relieved about Zillow Offers closing? Let us know in the comments below!

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