Zillow Group (ZG) is resuming its Zillow Offers home-buying business, reflecting the company’s confidence in real estate picking up despite the ongoing global pandemic.
Zillow Offers is one of several “iBuyer” or instant-buyer programs that give potential sellers quick cash offers on their homes. Users pay an average 7.5 percent on the sale price of their home to Zillow, which also makes repairs and cleans, but is more than a seller would pay a real estate agent.
Competitor Redfin (RDFN), which paused its Redfin Now service as well, is restarting it in several markets this month.
Zillow said it will restart Zillow Offers in four cities — Phoenix, Ariz., Tucson, Ariz., Raleigh, N.C., and Charlotte, N.C. — after pausing the program across 24 markets in March due to the coronavirus outbreak. The company is following safety protocols, such as additional cleaning regimens for for-sale homes, virtual tours, and recommending customers wear masks and gloves during in-home tours.
Zillow CEO Rich Barton expressed optimism for the future of real estate even though COVID-19 has slowed home sales and leaves the industry with an uncertain future. In a letter to shareholders, Barton cited increasing buyer demand in certain markets and traffic to Zillow’s web properties returning to pre-COVID-19 levels.
“One thing we’ve always believed, and confirmed again over the past two months, is real estate is resilient,” Barton said in the letter, co-written with Zillow CFO Allen Parker. “People still need to move — and dream of moving, perhaps now more than ever.”
Using a baseline prediction that GDP will decrease 4.9% in the U.S. this year, and go up 5.7% next year, Zillow predicts that housing prices will drop 2-to-3% through the end of 2020, as well a 60% decline in home sales this quarter. However, it estimates that sales volume will bounce back by the end of 2021.
Brad Erickson of Needham reiterated a Hold rating for Zillow this week, with a price estimate of $58. He wrote that “home buying demand is proving more resilient than we thought 8 weeks ago and with data being put out from various sources throughout shelter-in-place, we think Z’s stock now well reflects this improvement.”
Erickson went on: “Our latest checks with 30 realtors/7 states indicated more positively than we expected: less budget sensitivity in spite of ongoing transaction volume softness & low inventory…. From here, we view Z’s risk/reward as looking increasingly balanced…. Reiterate Hold on Z.”
Zillow currently trades for $58.30. TipRanks data reveal 6 Buy, 6 Hold, and 2 Sell recommendations among Wall Street analysts, for a Moderate Buy consensus and 12-month average price target of $48. This represents 17.7% downside potential for the stock. (See Zillow stock analysis on TipRanks.)
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