Zillow Group stock falls 10% after company says it will stop buying additional homes this year

(Zillow Image)

Zillow Group announced Monday that it will not sign any new contracts to buy homes via its home-buying and selling service for the rest of this year due to “backlog in renovations and operational capacity constraints.” The news sent Zillow’s stock down more than 10 percent.

Zillow will continue to buy homes that are under contract via Zillow Offers in 2021.

“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” Jeremy Wacksman, Zillow chief operating officer, said in a statement. “We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.”

Zillow Offers is the company’s “iBuyer” service that aims to digitize the homebuying experience from start to finish. It competes with other iBuyer services from Opendoor, OfferPad, Redfin, among others. The pandemic helped spur an iBuying spree with the acceleration of digital adoption such as virtual tours, The Wall Street Journal reported.

Zillow purchased 3,805 homes in the second quarter of this year, more than double what it purchased in the first quarter. It ended Q2 with 3,142 homes in inventory.

For comparison, Opendoor bought around 8,500 homes in the second quarter.

Zillow Offers is live in 25 markets; Opendoor is active in 44.

Zillow’s home-buying segment brought in $772 million in Q2 revenue, up 70% year-over-year, and accounted for more than half of Zillow’s total revenue. The homes segment posted an adjusted loss of $29 million, down from $60 million.

After its stock skyrocketed during the pandemic-driven housing boom, Zillow shares have fallen more than 30% this year. The housing market has shown signs of cooling in recent months.

The Journal reported a story Monday with the headline “Zillow gets outplayed at its own game,” noting that the Zillow Offers pause may be a case of poor planning.

“Leave it to a technology company to develop an algorithm to predict home values, but mismanage the human aspect of its business,” WSJ reporter Laura Forman wrote.

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Real estate Ibuyer Zillow Zillow offers