Zillow just announced that it has paused its (algorithmic) US homebuying business for the remainder of this year. The company acquired some 3,800 homes in Q2 of this year and, apparently, it now has a backlog of repairs and sales to work through. As a reminder, this business model, which is sometimes referred to as iBuying, is based on using algorithms to quickly value and buy homes (mostly online). The homes are then renovated and flipped for a profit. The problem, as most of you know, is that this pandemic has, among other things, disrupted construction supply chains and made it difficult to hire people. That has hurt the renovation component of this model.

Today's news was bad for Zillow's stock, but good for Opendoor's stock, which is their main competitor. Opendoor subsequently came out and announced that they remain open for business. (Disclosure: I am long $OPEN). But this announcement is perhaps a good reminder that buying and selling real estate remains a different animal than, say, buying and selling stocks. And so there are some perfectly understandable reasons for why real estate hasn't been disrupted by the internet in the same way that other industries have. Matt Levine does a great job explaining this in his recent column, "Sorry, Zillow's Computer Can't Buy Your House Right Now."

Here's an excerpt:

“I’ll pay you $350,000 for your house as long as a human can go out there, look around, and make sure that price isn’t wildly off” is an interesting model but it’s not quite the same as “push this button to sell your house for $350,000.” And “I’ll pay $350,000 for a house and then send out a crew to replace the carpets” is not quite the same as “I’ll pay $350,000 for a house and flip it 20 minutes later for $355,000, collecting a small spread for providing liquidity.” Computerization has come into the housing market, but it hasn’t taken it over yet.

One of the challenges is that the supply of homes is heterogeneous, even in a suburban community or in a multi-family building where you might have the same set of floor plans that repeat. Because maybe the home has been renovated and fit out entirely in gold. Or maybe it's the opposite and it has been poorly maintained. There are variables to contend with that have historically necessitated more rather than less human involvement. Homes are also something that don't trade all that frequently, which is less than optimal when it comes to online marketplaces.

But what if buying and selling a home was dramatically cheaper and easier to do? How often would people actually do it? Presumably more often. I agree with Matt that "computerization" hasn't taken over the real estate industry just yet. But algorithmic homebuying still appears to be one of the more promising approaches.

Matt Levine’s most recent Money Stuff article is classic Matt Levine. It is both entertaining and informative. This one is on WeWork – the coworking startup that has committed to 14 million square feet of office space around the world and will have $18 billion in rent payments due over the next decade.

Here is an excerpt:

WeWork Cos. is a real-estate company with a couple of innovative twists on the model. First, rather than owning its buildings, it rents them: It leases office space from regular real-estate companies, adds … beer? … or whatever, and then subleases the space to tenants at higher rates. And second, rather than being valued like a real-estate company, it gets valued like a hot tech startup — “the sharing economy,” ping-pong tables, etc. — so it can raise gobs of money from SoftBank Group Corp. at a $20 billion valuation without ever getting particularly close to profitability. And look at all these words:

“Indeed, to assess WeWork by conventional metrics is to miss the point, according to [Chief Executive Officer Adam] Neumann. WeWork isn’t really a real estate company. It’s a state of consciousness, he argues, a generation of interconnected emotionally intelligent entrepreneurs.”

Really, what sort of multiple would you put on a state of consciousness?

Lately I have really gotten into Matt Levine’s daily newsletter about “Wall Street, finance, companies and other stuff.” Maybe that’s how I should describe this blog: Cities, real estate, design, and other stuff.

If you aren’t familiar with Matt’s writing, here is an article that he wrote about Kylie Jenner’s recent tweet concerning Snapchat. You know, the one that wiped out $1.3 billion of market value because she revealed – using only 88 characters, I might add – that she was no longer using the app.

sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.

— Kylie Jenner (@KylieJenner) February 21, 2018

https://platform.twitter.com/widgets.js

The article was spurred on by this question:

“Would it be insider trading for Kylie Jenner to buy short term out of money put options on Snap and tweet out that she’s no longer using Snap?”

And this is the start of his answer:

Insider trading, as I am constantly saying around here, is not about fairness; it is about theft. It is not illegal to trade on your own nonpublic knowledge of your own intentions. Warren Buffett can buy stocks before he announces that he’s bought them, even though that announcement will predictably make the stocks go up. 

If I did describe this daily blog like Matt describes his daily newsletter, this post would clearly fall into the “other stuff” camp. But maybe you too will find it interesting. If you do, you can subscribe here.