Zillow is Destroying the US Real Estate Industry

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Zillow's monopoly in the real estate industry has resulted in reduced home affordability, unfair destruction of competition, all while Zillow pays nothing in federal taxes and continues to use its power to destroy competition, one company at a time. While in the past I have reviewed their specific strategies, today we'll take a 30,000 foot overview of the wake of destruction Zillow is creating.

Before we go into that, let's take a look at the market and see where we're at.

I always say there's two parts to an economy and this is actually just standard economic theory. There's demand and supply. Demand is measured probably or at least driven by interest rates in the housing market and supply is how many houses are for sale.

Let's take a look at the latest demand, driven by mortgage rates. At the end of the year, rates increased to slightly over 7%, and last week continued the march higher, closing Friday at 7.24%

Since late September, rates have risen about 1%, and while we were in this rate at the beginning of the summer last year, these rates are beginning to enter an area where more buyers will be unable to buy a home. More importantly, its important to watch for any jumps up or down as the market is always most volatile after a major move like this.

Now, on the supply side, housing inventory continues to drop while staying near to historic lows.

The inventory, while still about 12% higher than last year, and is dramatically below the historic pre-COVID averages by 30-40%. As long as inventory remains at these levels, housing prices cannot crash or decline significantly absent some dramatic change to the economy. All that said, these numbers may change in reaction to the jump in mortgage rates these past 3 weeks.

Now, real estate is a local market here in Los Angeles, my primary market.

The overall market rating has settled into the 36 rating that indicates a seller's market, although not as strong as over the last few years. That said, everything will change as a result of the recent fires, although it is not yet clear what direction that will move things. I imagine that so many homes have been removed from supply that will not be replaced for decades that it will only strengthen the hands of current owners and sellers.

If you follow me, you know that I regularly call out Zillow for their practices. And while you may think its too often, the truth is that Zillow has become so dominant that they are literally 7 times bigger than the 2nd largest real estate company. And while in the past I have focused on specific transgressions and practices, today I would like to provide an overview to the damage it has wrought.

First, let's review just how broken the housing market is. One of the basic tenants of the "American Dream" had been for a family to afford owning a livable home on one income. Increasingly, that is impossible.

For comparison, in 1950, the average home cost $7,354 which is about $88,600 in 2024 dollars. In 2024, the average home costs $416,000, which is a 370% increase in cost. At the same time, in 1950, median household income, mostly commonly 1 income, was $3,300 which translates to $39,800 in 2024 dollars. In 2024, the average income is $74,580, over half of which represents 2 incomes. That is only an 87% increase. So the cost of a home went up 4 to 5 times that of average household income, at the same time requiring a 2nd income half the time to even meet that standard.

As a result of the 2008 housing crash, housing affordability improved dramatically, creating more opportunity for Americans to buy homes and benefit. This was also when Zillow was founded. Since the COVID event, when virtually every industry was reset, housing affordability has crashed for Americans.

Chart 1 contains a line graph showing the U.S. homebuying affordability index over the period 1980 Q1 to 2024 Q1. The index rose notably following the 2008 financial crisis but began to show sizeable declines after the start of the pandemic.

What does Zillow do? I have covered many of these practices in past episodes:

Partnerships with other monopolies like Redfin

Their Zestimate tool that is used to generate business and NOT effective at estimating value

Their fake news pushing their narratives

How they control the news media with their advertising power

How they have become a political activist on issues like DEI, fake housing affordability issues, fake Climate Change issues, and pushing the market towards rentals and mass transit.

Here is a great piece on Zillow's monopolistic practices by real estate colleague Paul Zubry called "Zillow’s Takeover of the Real Estate Industry: The Path to Monopoly."

My purpose today is to take an overview of their power. For example, let's look at their financial power. Zillow's market capitalization, that is the value the stock market places on the organization, is over twice the total of all other publicly traded companies that it competes with that I am aware of.

None of these companies compete with Zillow as they are a monopoly when it comes to the housing search, with over 70% of the traffic. They also control the business of selling leads, and are in the process of using their monopoly powers to force consumers to use their services in mortgage, insurance, and closing services.

All this while Zillow pays NO federal income taxes.

It was hard to get the whole graphic, and I wanted a picture that had Zillow's name PLUS the big fat 0 they pay in taxes annually as I did not really believe it myself the first time I saw that. So, they have created over $16 billion in value for their owners, but pay no federal taxes, which "disrupting," fancy word for destroying, competitors that do pay federal taxes. How long can this be sustained.

You might ask who would get away with this? Well, Zillow is basically owned by investors, with very littled owned by employees or managers of the company.

In fact, 95% is owned by institutions, a fancy word for Wall Street type investors. The largest is not even American, but Caledonia Investments, an Australian concern. The 2nd and 4th largest are Vanguard and Blackrock, the usual suspects in any corporate greed scheme pushing policies detrimental to American citizens but profitable to their owners.

While we are discussing Zillow, I wanted to point out two factors that I think even I did not know.

First, they admit their Zestimate now is no longer accurate. On their own website, they make the claim "The nationwide median error rate for the Zestimate for on-market homes is 2.4%, while the Zestimate for off-market homes has a median error rate of 7.49%."

What this shows is that Zillow is more accurate when they copy the MLS listing price than making an estimate on their own, something I have watched. Zillow changes their estimate for a property regularly, and when its listed, they immediately adjust it and it almost always is within a percent or two of the list price, which is probably the best indicator.

Another troubling factor is they seem to use the H1B visa program to both avoid having to hire Americans for high tech jobs and to use that program to keep salaries down on those Americans that do apply.

For a program that was designed to fill jobs that cannot be placed in the US, Zillow has hired hundreds if not thousands of employees using the H1B program.

Contrary to common belief, these are high paying jobs, with the minimum reaching over $93k in 2024, iwth the average over $175k.

What kind of jobs are these? Well, a brief look at the titles, and they almost all seem to be high tech jobs.

There are not Americans for these jobs? Either there are, and Zillow would rather pay a lower salary to an employee from India or China to avoid giving a raise to the American, or there are not enough Americans capable of these jobs, a terrible indictment of our education system. We just documented that Americans earn on average $74k a year and here we are importing people from around the world at salaries twice that amount instead of creating them here. In decades past, leading companies would support high schools and collages and create trade schools to build their employee base, in this case large tech monopolies like Zillow just pay off politicians and get employees on the cheap from other countries.

This ties into the last statistic I wanted to share. While I appreciate high tech companies are more liberal than average Americans, I was shocked when I saw what percentage of the company was registered as Democrat:

Again, I appreciate diverse opinions, but how do you build a company of over 8,000 employees and make sure 96% are Democrat? Do you check registration before you hire? Check after and fire any non-Democrats? Certainly its not a statistical anomaly but a specific strategy of some part. In fact, a review of the donations from Zillow employees is even clearer, 100% to the Democratic party.

I think these two statistics, along with the H1B visa abuse, show Zillow to be really a political activities arm of the Democratic Party, abusing its monopoly status to curry political favor to allow it to gain more power, all while avoiding paying federal taxes.

So, what should YOU do about buying or selling real estate in today's market?

If you are looking to buy a home and live there for a while, real estate has always been a great long-term builder of wealth and there is nothing to suggest that is changing if you can afford the home.

If you want to move or downsize, it's still a great market to sell, but a bit more challenging than in the last few years.

Finally, if you can find a property that will give you cash flow, this is a great time to get solid cash flow and enjoy the tax benefits of real estate.

How can I help you? Call, text, or email me.

Bill

Bill Gross

Broker Associate, BRE 01022275

Certified Probate Expert

Direct: 310-210-0008 , [email protected]