Zillow stock dives after analyst highlights two-thirds of homes bought are underwater

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“Zillow may have leaned into home acquisition at the wrong time, and we believe earnings may be at risk due to its current home inventory ($1.17 billion at 2Q21),” Yruma wrote in a note to clients.

Yruma said it completed an analysis of 650 homes in Zillow’s inventory, or about one-fifth of the homes owned, and found that 66% are currently listed below the purchase price at an average discount of 4.5%.

Of the 650 homes Yruma analyzed, the cities in which the company had the highest percentage of homes that were listed below the purchase price were San Diego at 94.3%, Phoenix at 93.4% and Mesa, Ariz. at 92.6%.

The city with the most homes listed below the purchase price was Phoenix with 71. Charlotte, N.C. had 70 and Las Vegas had 52.

“While we do think that [Zillow’s] issues are likely transitory in nature, we do think it highlights the importance of strong property level and market data,” Yruma wrote. “From a [long-term] perspective, we maintain that [Zillow’s] changing customer focus (the agent is the customer in the IMT business vs. the consumer in homes) may for unanticipated (and likely negative) compromises.”

Yruma reiterated the neutral rating he’s had on the stock since February 2020.

The stock has tumbled 24.8% year to date, while Zillow’s Class A shares ZG, -8.62%, which were shedding 7.6% on Monday, have sunk 28.2% this year. In comparison, the iShares U.S. Home Construction exchange-traded fund ITB, +1.10% has run up 30.3% and the S&P 500 index SPX, +0.18% has gained 22.8%.