Last Updated: November 23, 2021
After Zillow, the real estate giant, called it quits on the houses-flipping business, it put its mortgage bonds worth $1.6 billion in the spotlight, according to MarketWatch.
The company announced they won’t be buying more houses this year and will lay off 25% of its staff. Zillow expects losses of millions of dollars. The company blames a faulty algorithmic model for overpaying for the houses it bought in the second quarter of 2021. Even though Zillow is one of the top-rated real estate companies on the market, as statistics show, and is well aware of how the real estate market works, mistakes happen.
For people investing in stocks, Zillow’s announcement that they will stop with their house-flipping business might have come as a shock since it all happened abruptly and there was no warning sign in the stock market indicators.
The Effect on the Bonds
This whole situation had an effect on the company’s bonds. During the last month, the bonds were traded at $100, and on Wednesday after the announcement, they were traded at $95 or $96, respectively. When it comes to evaluating how secure the bonds are, people should know that Zillow’s bonds are supported by a revolving pool of collateral, not a fixed one.
What About Corporate Mortgages?
Zillow grants mortgages which help buyers to purchase their perfect home. Even though the company’s house-buying business failed, the corporate mortgages could be a lifesaver because there is still another source of revenue the company could use to back up its bonds.
The Effect on the Shares
The backing down from its iBuying house-flipping business proved to have tremendous effects on Zillow’s shares. They fell drastically – 24.9%, as reported on Wednesday, and the share prices fell 49.6% for the year so far.
Although the predictions for the housing market this year were that the market will not fluctuate that much, this didn’t prove true for Zillow at the moment. It remains to be seen what the future holds for Zillow.