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Zillow has more to offer than just helping you find your dream home. It now wants to be your mortgage lender as well. To attract more customers, the leading US online property company is introducing mortgages with a minimal 1% down payment.
However, Zillow’s ambitious endeavors don’t always yield successful results. The company’s foray into home-flipping, known as Zillow Offers, ended in 2021 due to significant losses. From this setback, Zillow has pivoted towards a vision of becoming a “housing super app,” aiming to offer a comprehensive platform for buying, selling, financing, and renting properties.
Integrating loan offerings into the Zillow app aligns with this strategy, but Zillow’s presence in the mortgage lending market is comparatively small. While the company originated $336 million in home loans in the latest quarter, industry giants like Rocket Company (owner of Quicken Loans) and UWM made $22.3 billion and $28 billion, respectively.
Unfortunately, Zillow’s loan business is currently unprofitable. Despite generating $119 million in revenue last year, it incurred an operating loss of $167 million. Consequently, this relatively small division accounted for 6% of the company’s revenue while dragging down its overall profitability. Introducing 1% mortgages alone won’t reverse this unprofitable trend.
One major risk associated with offering loans with minimal down payments is that buyers may find themselves with negative equity if the value of their homes declines. This situation often leads borrowers to abandon their loans during challenging times.
Although Zillow’s share price has risen by 48% this year, it is still 76% below its peak in 2021. Investors should thoroughly examine the foundation of Zillow’s recent price surge.
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