Source: GeekWire —
The once high-flying real estate market sputtered in 2022, dragging many real estate tech companies down with it.
The sudden swing pushed companies to cut costs, which included layoffs and shifts to their business models. Seattle giants Zillow Group and Redfin both trimmed headcount and shuttered their home-flipping iBuying operations.
While these companies may face similar headwinds this year amid sluggish transaction and mortgage volumes, there may be glimmers of hope in the form of smaller losses and increased revenue from new services.
Here are five trends to watch in 2023 for Zillow and Redfin.
Impact of transaction volume
After Redfin winds down its iBuying operation, it will make most of its money by charging listing fees when a home sells through the platform. Most of Zillow’s revenue will come from Premier Agent, its advertising service for real estate agents looking to serve prospective home buyers.
Both of these segments thrive in hot markets, when buyers and sellers are feverishly inking deals, but struggle when the economy cools.
In 2023, many would-be buyers may remain sidelined by higher mortgage rates, still-high home prices, and the likelihood of a recession, Redfin Deputy Chief Economist Taylor Marr wrote in a blog post. He predicts 16% fewer home sales in 2023, with a total of 4.3 million homes sold.
“People will only move if they need to,” he wrote.
Redfin brokered 18,245 transactions in Q3 2022, down 17% from the same period the year prior. Zillow’s Premier Agent generated revenue of $312 million, down 13% from the year-ago quarter. Both companies are forecasting even lower volumes in Q4.
These revenues may continue their downward trajectory until interest rates ease and buyer sentiment improves.
But not everyone is convinced the housing market will continue its decline in 2022. Bank of America Securities Analyst Curtis Nagle wrote in a recent research note that he predicts housing markets will “trough” in early 2023, adding he is “confident that growth can return to double-digits in 2024 on improving affordability.”
