Benzinga | Oct 18, 2021 12:56PM EDT

Why Zillow Homebuying Halt 'Might Be Beneficial' In The Near-Term

Online real estate listing platform Zillow Group Inc (NASDAQ:Z) is reportedly pausing its iBuying program through at least the end of 2021 after the company purchased more than 3,800 homes in the second quarter.

The stock dropped more than 7% on Monday morning after Bank of America analyst Nat Schindler said the pause underscores the high degree of uncertainty in the iBuyer model, and management's guidance and commentary surrounding its Homes segment will now be a critical part of the company's third-quarter earnings report.

What Happened? In a new research note, Schindler reiterated his Underperform rating and $100 price target for Zillow. Zillow said high demand for the company's iBuying service is largely to blame for the pause, which will allow the company to work through its existing backlog of homes. Schindler said labor and material shortages are likely also major factors.

Related Link: Why Zillow Stock Is Down 20% In 2021 In The Middle Of A Housing Boom

Why It's Important: Schindler said the Zillow purchasing pause could be a significant opportunity for iBuying competitors Opendoor Technologies Inc (NASDAQ:OPEN) and Redfin Corp (NASDAQ:RDFN) to gain market share from Zillow. Zillow previously halted its home-buying activity for several months in the early days of the pandemic in 2020 before resuming it several months later.

Despite the negative market reaction, Schindler said there may be a silver lining to the pause for Zillow investors.

"We also believe this temporary halt might be beneficial for Zillow in the near-term as the company would avoid acquiring overpriced inventory in the currently overheated housing market and prevent overextending its balance sheet," Schindler said.

Benzinga's Take: It's never a good thing for a business to lose market share in a high-growth business like iBuying. However, it appears Zillow management is trying to take a responsible approach to its business and not overextend itself financially in a period in which the risk of overpaying for houses is relatively high.

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