Morning Report: Zillow gets slammed after changing its business model 4/16/18

Vital Statistics:

Last Change
S&P futures 2672 14
Eurostoxx index 378.3 -0.91
Oil (WTI) 66.56 -0.84
10 Year Government Bond Yield 2.87%
30 Year fixed rate mortgage 4.44%

Stocks are higher despite coordinated strike in Syria over the weekend. Bonds and MBS are down.

Watch the oil markets. North Sea Brent crude is rising on tensions in the Middle East, but West Texas Intermediate (which is the main oil used in the US) is shrugging off the news. Bullish bets on Brent oil have hit record highs.

The 2 year hit 2.4%, the highest level since 2008. The flattening of the US yield curve continues.

There isn’t much in the way of market-moving data this week, although we will get a lot of Fed-speak. Probably the biggest one will be housing starts tomorrow.

Retail sales rose 0.6% in March, which was better than the Street 0.4% consensus. The control group increased by 0.4%, a touch below the 0.5% consensus estimate. Gasoline sales were up on higher prices. Revisions were lower, however.

Business activity in New York State decelerated last month according to the Empire State Manufacturing Survey. New Orders and Production slowed down somewhat, but employment remained firm and the workweek increased. Future sentiment declined to the lowest level in 2 years.

The NAHB / Wells Fargo Housing Market Index slipped last month, but builder sentiment remains strong.

Wells Fargo faces $1 billion in fines due to force-placed auto insurance and improper charges for lock extensions. The big banks have all reported strong earnings, and the tax law changes are certainly helping.

Zillow shares fell 9% on news they plan to get into the house flipping business. “We’re entering that market and think we have huge advantages because we have access to the huge audience of sellers and buyers,” Zillow CEO Spencer Rascoff said on CNBC’s “Squawk Alley.” “After testing for a year in a marketplace model, we’re ready to be an investor in our own marketplace.” Investors are understandably skeptical, as the multiple for a fintech company is much higher than one for a property company, and it puts Zillow in direct competition with the realtors who utilize the site. Investors are not wild about changing focus from an ad model with high margins and low balance sheet usage to one that is low margin and uses a lot of balance sheet. Another issue: will people trust Z-scores if the company has a financial interest in the value of real estate in a particular area?

Want to know how acute the housing shortage is in California? From 2000 – 2015, the state built 3.4 million too few homes to keep up with job, population, and income growth. That is over 2 year’s worth of current housing starts for the whole US population. Pretty astounding when you consider those years start before the housing bubble really got going. CA has always had NIMBY issues, and now there is a push to allow dense multi-family building near public transit, even if local zoning codes prohibit it. Separately, it looks like Dodd-Frank regulations did have an adverse affect on smaller banks. I wonder how much that plays into the housing shortage.

Speaking of CA housing, here is what you can get for $800,000 in San Jose. Handyman special.

28 Responses

  1. If I understand Chait correctly, for a Republican to truly oppose Trump,they must ideologically become a Democrat.


    • Chait:

      The idea of abandoning the Republican Party because it is authoritarian and toxically anti-intellectual was apparently as unfathomable to him as a fish in a polluted river deciding to live on land.

      The utter lack of self-awareness boggles the mind.


    • It never dawns on him that the Sanders / Warren / Ellison / Ted Lieu wing of the Democratic Party is equally noxious….


    • The biggest advantage that Trump and the Republicans currently have is that the only viable alternative to them currently is the Democrats.

      Chait’s lack of self awareness is impressive as Scott notes. The idea that the Democratic party may have to shift to capture more of these potential defectors never seems to enter his thinking.

      If anything, they must come as supplicants on bended knee to be allowed into the realm of the right thinking again.


      • I liked his closing sentence:

        There comes a time when trying to patch things up and hoping for better days ceases to be a responsible choice, and one must conclude that the Republican Party’s straightest path to salvation runs through a cleansing fire of electoral destruction.

        Several years of electoral destruction at virtually every level of government, culminating of course in the surrender to Donald Trump himself of the one elected office that hadn’t yet been lost, hasn’t exactly cleansed the D’s or dissuaded Chait from supporting its corrupt candidates. Again, a total lack of self-awareness.


  2. In honor of tax day

    Todd: “Daddy, what do taxes pay for?”
    Ned: “Oh, why, everything! Policemen, trees, sunshine! And let’s not forget the folks who just don’t feel like working, God bless ’em!”



  3. Latest annoying Voxism:

    Any position or argument that a Vox author disagrees with is a “myth” that needs to be “debunked”.


  4. Worth noting:

    “The Most Newsworthy Part of ABC’s Comey Interview Was an Unaired Detail About His Infamous Hillary Email Letter”


    • Brent;

      The enviro movement is taking a page from the gun control movement

      Use of the courts as the means of imposing policy that cannot be enacted through the normal, democratic political process has been the progressives go-to strategy for decades. It’s not for nothing that they’ve gone through the effort of taking over law schools and produced generations of progressive lawyers and judges.


    • Here’s some more info on the same event, from Ilya Shapiro.

      My favorite part:

      Josh supports the DREAM Act, and said so at CUNY, which provoked gasps and a cry of “gaslighting.” His position is simply that this good policy needs to be legislated, that the president can’t enact it on his own. The protestors just couldn’t fathom that something can be a good idea and yet not legal…“The lesson is you can support something as a matter of policy,” he began to explain before yet another interruption, “but find that the law does not permit it. And then the answer is to change the law.” The mob’s response to that rather obvious and banal point was “f-ck the law.” An incredulous Josh could only reply, “You are all in law school. And it is a bizarre thing to say ‘f-ck the law’ when you are in law school.”

      Given that there’s been a wing of SCOTUS that has been doing it without explicitly saying it for nearly a century, it shouldn’t be surprising that a new generation has taken that on board, just with a little more honesty.


      • Doesn’t bode well for my chosen profession when law students yell “F-ck the law” and aren’t opposed by an overwhelming majority of the law student audience.

        I don’t agree with your generalities about the Supreme Court, of course, even if I do agree with you about many rulings throughout American history.


        • MarK;

          I don’t agree with your generalities about the Supreme Court,

          I know. But I think it is impossible to understand certain opinions in any other way. When William Brennan proclaims that the death penalty is unconstitutional despite it being explicitly contemplated by it, to me he is clearly giving a middle finger to the law. When the Wise Latina proclaims that a law prohibiting racial discrimination is rendered unconstitutional by the equal protection clause, it is to me nothing more than a thinly veiled “Fuck the law”. Such opinions can be explained in no other way. And that is not even to get into such blatantly unconstitutional rulings like Roe and Obergefell.


        • “Doesn’t bode well for my chosen profession when law students yell “F-ck the law” and aren’t opposed by an overwhelming majority of the law student audience.”

          That would be correct. They aren’t going to like where this ends.


        • Mark:

          Doesn’t bode well for my chosen profession when law students yell “F-ck the law” and aren’t opposed by an overwhelming majority of the law student audience.

          To be fair, it looks like there wasn’t much of an audience to be opposed to it in any event. Very small crowd. You can watch it here.


        • My personal favorite:

          “The First Amendment is a weak shield for white supremacy”

          The best thing you can do for the real white supremacists like Richard Spencer is link things like this together. If supporting the Constitution becomes tantamount to endorsing white supremacy, there are going to be a lot of white supremacists.


        • Richard Spencer gets a lot of press.



    Serious question: is it more likely that a] Nikki Haley went off on her own or b] that DJT changed his mind a day after approving her public stand?

    I think b].

    But I don’t know. It isn’t good either way.

    I thought the Syria strike was symbolic but good. Leaving aside the constitutional question raised by the umpteenth time a POTUS has authorized a military strike without reaching out to Congress because it was the umpteenth time, striking known chem warfare sites was reasonable. Surely a round of sanctions for Russian failure of promised oversight of Syrian chem warfare was also reasonable.

    So saying it plainly as Haley did but then reversing field behind her is not a good look.


    • “striking known chem warfare sites was reasonable.”

      But to what end? It’s not going to make any difference, and you can make a good argument that half assed actions like this undercut the credibility of US military threats going forward.

      That’s why Saddam Hussein thought he could get away with as much as he did. All the previous times all he had to deal with as a response were strikes like these.


      • If Europe wants to disincentivize these type of actions, they should conduct them.


      • it tough to craft a military policy that will generate good press, and striking visuals, but also be ineffective.


      • 1] If in fact, these were the only chem weapon mfr site and the only chem storage site[s] it puts Assad out of the chem warfare biz for months. IDK if these are facts.

        2] The no-fly zone over Iraq did deter Saddam and was a useful prophylactic throughout the 90s. That we were told he had nukes and hadn’t destroyed his chem weapons was wrong in each case but I think innocently so in the second. The inspectors truly expected to find chem weapons and when they did not it turned out Saddam had been lying that he still had them before he desperately claimed he did not for the first time when he invited inspections right before the invasion. So I don’t think the Iraq War was necessary or proper in hindsight, and I don’t think Saddam got away with much for many years of USAF-UK overflights. YMMV. I was for that invasion before I was against it. Tony Blair’s speech hooked me. I was w-w–rong.


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