Zillow, Bots And The Future Of Real Estate

All markets change, but few have changed as much as real estate since the turn of the century. Brought on by overextension of mortgage credit to under qualified buyers combined with various schemes to securitize the debt (and then securitize the securitizations and bet against all of those securities with credit default swaps), the housing market ground to all but a screeching halt in 2007 and has spent much of the last decade rebuilding lost value and warming up again.

That growth has been remarkably inconsistent — Northern California has met and surpassed 2007 averages several times over, but there are whole sections of Florida still dotted with McMansions half built. It’s also been inconsistently spread out — baby boomers until very recently have been the majority of the market, while millennial buyers have been largely silent to an extent that various experts and thought leaders had become reasonably convinced that perhaps the generation that was born after the 1980s simply had developed an American dream that does not involve homeownership.

That is not quite accurate — and as we’ve previously covered, millennials seem plenty enthusiastic to buy homes. The reasons they haven’t include a stew of factors like depressed wages (since so many entered the workforce during the Great Recession), student debt load and starter housing availability — among a host of others.

That trend, however, is predicted to turn around some. TransUnion estimates that between 13 million and 17 million first-time homebuyers will be entering the housing market as buyers in the next five years and that the vast majority of them will be millennials. Some question marks remain — the Trump administration just rolled back an FHA insurance rate cut passed by the Obama administration during its waning days, which will run up costs for many first-time homebuyers who make use of the program. There is also the reality that housing costs are going up, as are interest rates, both of which are expected to throw some cold water on the housing market.

But the general trend, the experts agree, will likely be toward growth, particularly among younger buyers, barring some as of yet unforeseen financial disaster.

And that comes as very good news for Zillow, the web’s favorite destination for people who love to look at houses.

“I somehow spent a half-hour on this site, marveling at the value of my house, my old house, my parents’ house, my mother-in-law’s house and so on,” noted one New York Times writer on the magic of getting lost in Zillow listings.

Founded in 2006, Zillow appeared as the web’s real estate guide right before the bottom fell out of the real estate market. And yet, Zillow persevered (people liked looking at housing and estimating just how much value they were losing — even if they weren’t buying or selling), and though it didn’t quite do what was expected of it — kill of the traditional real estate broker à la the travel agent — it’s certainly made its mark on the market.

Today almost 90 percent of customers start their real estate journey online— and though most end up working with a traditional broker, that broker is going to hear a lot about the Zestimate on the property, whether they want to or not. Brokers have spent years complaining that despite being totally inaccurate, consumers are nearly obsessed with the Zestimate and not paying more than it.

But Zillow, by most accounts, has become a supplement to the business of real estate brokers — and plans to continue to be, even though it.s embarking on its next big project that has already set off “about to disrupt the traditional broker” whispers: the introduction of chatbots.

“I choose to believe that all (artificial intelligence) is an enhancement, not a displacement. Just pick your industry,” said Zillow cofounder Rich Barton, speaking at the Inman Connect real estate conference in New York. “We do like to see the end of the world in every new technology that emerges, but, in fact, the truth is every new technology that has emerged has enhanced humanity and created new kinds of jobs that are much better and safer than the factory jobs or whatever jobs were being displaced.”

And what tech can do — and has done terribly efficiently for the last half-decade — is find ways to distribute information more efficiently and democratically to people everywhere — and artificial intelligence is a continuation of that legacy. Instead of checking Zillow compulsively, Barton noted, consumers can instead ask Alexa to keep track of things like how many other consumers have visited the site or if the price has changed.

“That is the beginning of what I see as a new phase,” he said. “Twenty years ago, the industry said the exact same thing about information and the agent. And 10 years ago the industry said the same thing. And five years ago the same thing. And today they are fearing the same thing.”

Of course, at some point fears of displacement are warranted. Typewriter salesmen really should have been nervous about computer programmers. Barton thinks that technology can make the buying process smoother for all parties — but that on some level, the vast majority of people will always want to have a person with whom to work through the complex and somewhat emotional process of buying a house.

But then, AI is getting better everyday and the goal for at least some innovators to create something that feels exactly like talking to and working with a person. Whether that “person” will be someone one wants to buy a house from …. Well, maybe the industry isn’t quite afraid of the same old thing after all.