U.S. Housing Market
The U.S. housing market has been on a tear during the past 5-6 years, mainly driven by an economic recovery post the 2008 financial crisis and investors from abroad. However, the run of housing could be coming to an end soon (if it hadn't slowed already) due to over appreciation, over supply of new constructions, and inflow restriction on foreign money.
About Zillow Group (NASDAQ:ZG)
Zillow acts as an information marketplace, on both the Web and mobile, to help people find information about homes. It focuses on all stages of home lifecycle, including buying, selling, renting, and financing.
Currently, Zillow is valued at $5.8B with a negative P/E. It trades at around $32.50 per share, down from $39 per share since its Q2 earning report release.
How does Zillow make money
Zillow's revenue comes from two streams:
- Real Estate Agents - Realtors and brokers use Zillow to promote themselves and also their listings. A listing as "featured properties" helps agents sell homes quicker. This is Zillow's largest revenue stream.
- Other Ads - From companies associated with a property, such as Best Buy (BBY) (new fridge for new home) and Time Warner (TWX) (cable tv, phone, internet).
Bearish reasons
- Real estate market follows a predicable cycle, which repeats itself every decade or so, as evidenced by historical trends (see below chart). We have clearly moved out of the recovery phase as unemployment rate went from over 9% to now below 5%, and are now in the end of the expansion phase as key interest rates will soon increase. For study on real estate cycle, refer to Teo Nicolais's blog.
- In my opinion, the U.S. is about to entered the "hypersupply" phase, particularly in cities such as Miami and New York, and other metropolitan areas soon to follow.
