Zillow Group expects real estate industry ‘meaningfully contract'

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Due to housing patterns, Zillow Group anticipates that income from its primary Premier Agent business unit will fall by more than 20% in the third quarter.

The Seattle-based business outperformed forecasts for its second quarter earnings, generating $1 billion in revenue and $8 million in GAAP net income. In contrast, shares fell more than 10% in after-hours trade.

As mortgage rates increase and supply remains constrained, there are indicators that the U.S. home market is cooling. In June, pending house sales decreased by 20% from the same month a year earlier and by 8.6 % from May.

Although demand indications improved in July compared to June, we anticipate a considerable year-over-year decline in second-half 2022 overall industry transaction dollar volume. Rich Barton, CEO of Zillow, stated in a letter to shareholders.

In the second quarter, revenue from Premier Agent, Zillow's advertising division that assists in connecting real estate agents with buyers and sellers, fell 5% year over year to $333 million, well shy of the low end of the company's forecast range.

At the midpoint of its prediction range, Zillow projects that Premier Agent revenue would decline by 21% in the third quarter.

It noted reduced home price appreciation due to decreasing demand and rising inventory, as well as weaker home purchase demand caused by rises in interest rates.

Compared to 56% in April, two-thirds of agents surveyed most recently by RBC Capital Markets said they have already reduced or plan to reduce their spending with Zillow.

In a research published last week, RBC equities analyst Brad Erickson stated that rates "need to stabilise for long enough that sellers eventually capitulate, luring more buyers and as a result, additional inventory."

According to Zillow, total visits increased by 5% year over year to 2.9 billion during the second quarter, while the average monthly unique users increased by 2% to 234 million.

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