Online real estate marketplace Zillow on Monday announced it will stop buying new homes for the rest of the year due to a backlog in renovations and operational capacity constraints.
The company’s Chief Operating Officer, Jeremy Wacksman, said in a statement that Zillow will not be signing any new, additional contracts to buy homes through the end of the year but will continue to market and sell homes through Zillow Offers during this period.
Through its Zillow Offers program, the company buys homes directly from sellers and completes all of the necessary upgrades or repairs without the the seller having to host open houses or showings. After buying a home, Zillow prepares it for sale.
Home purchases by iBuyers now account for about 1 percent of the market, according to a report from Zillow.
But due to a shortage of labor and supplies, Zillow can’t meet current demands to close, renovate, and resell the homes fast enough.
Wacksman said the temporary pause on purchasing of new homes will allow Zillow to focus on purchasing homes with already-signed contracts that have yet to close, and reduce its renovation pipeline.
“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation, and closing spaces,” Wacksman said.
“Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory,” he added.
Zillow purchased 3,805 homes in the second quarter this year, marking a record high for the company and more than double the number of homes it bought in the first quarter, CNN reported, citing a note to company shareholders.
The company’s pause on its Zillow Offers program, also known as an iBuyer program, appears to be specific to Zillow, according to Mike DelPrete, an independent real estate technology strategist and scholar in residence at the University of Colorado Boulder.
“Zillow just kept barreling down and now they’ve hit this wall,” he told CNN.
“If you’re trying to be number one in the market, slamming on the brakes is one of the worst things you can do,” said DelPrete. “You want to make some adjustments before you get to that point—slow down, switch gears. This is not the preferred outcome for Zillow.”
The company’s announcement comes shortly after September research from Realtor.com showed the United States is short of more than 5 million homes, driven by increased housing demand across the country and a lack of materials and workers in the construction industry.
Construction companies were already suffering from labor shortages well before the COVID-19 pandemic began, but have since been plagued with further issues surrounding supply chain management leaving contractors unable to source basic materials, and the skyrocketing prices of building materials, all of which have further exacerbated that preexisting shortage.
Data released on Sept. 9 show that the United States is short of 5.24 million homes, an increase of 1.4 million from the 2019 gap of 3.84 million, according to the U.S. Census.
Between 2012 and June 2021, 12.3 million American households were formed, but just 7.5 million single-family homes were started, and 7 million single-family homes were completed during this same period of time.
Realtor.com noted that if household formations were to continue at the current five-year average, home completions would have to triple production in order to close the gap within five to six years.
However, if household formations were to remain at the same pace while home completions increase, it would only take five to six years to close the gap between the two.