Zillow shares dip after analyst points out two-thirds of homes bought are underwater

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Zillow Group Inc. shares plunged on Monday, after KeyBanc analyst Edward Yruma pointed out that most homes the real estate services company bought, with the aim of flipping them, were now worth less than they were. have paid for them.

The Z butt,
-6.25%
lost 5.8% in midday trading. Although the stock is still up 13.6% since closing at a 13-month low at $ 86.00 on October 18, the day Zillow announced it would stop buying homes in the United States. after building up a large backlog, the stock was still down 51.1% since the close. to a record $ 199.90 on February 16.

Do not miss: Zillow Suspends Buying a Home – Raising “Red Flags” in the Real Estate Market.

“Zillow may have looked into buying homes at the wrong time, and we believe its profits may be at risk due to its current home inventory ($ 1.17 billion in 2Q21),” wrote Yruma in a note to clients.

Yruma said he has completed an analysis of 650 homes in Zillow’s inventory, or about one-fifth of the homes owned, and found that 66% are currently listed below the purchase price with an average discount of 4.5%. .

Of the 650 homes analyzed by Yruma, the cities in which the company had the highest percentage of homes listed below the purchase price were San Diego at 94.3%, Phoenix at 93.4% and Mesa, Arizona at 92.6%.

The city with the most homes listed below the purchase price was Phoenix with 71. Charlotte, North Carolina had 70 and Las Vegas had 52.

“While we think that [Zillow’s] the issues are likely transient in nature, we think this highlights the importance of a level of ownership and strong market data, ”Yruma wrote. “Of [long-term] perspective, we maintain that [Zillow’s] the change in customer focus (the agent is the customer in the IMT business versus the consumer in the home) can lead to unanticipated (and possibly negative) tradeoffs.

Yruma reiterated the neutral rating he had on the stock since February 2020.

The stock has fallen 24.8% year-to-date, while Zillow ZG’s class A shares,
-8.62%,
which lost 7.6% on Monday, fell 28.2% this year. By comparison, the iShares US Home Construction ITB exchange-traded fund,
+1.08%
climbed 30.3% and the S&P 500 SPX index,
+ 0.18%
gained 22.8%.


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