Market Update – 11/05/2021

On Wednesday, the Federal Reserve announced that it will begin to reduce bond purchases in the market and end it completely by the middle of 2022. Chairman Powell said that there is no plan to raise interest rates in the near term, which has also bolstered the market allowing it to continue setting new highs.

The online real estate marketplace company Zillow announced that it would terminate its house-flipping business due to huge losses caused by failures in its software programs to operate effectively.

There is news that Zillow modified its original algorithm for direct housing offers, which caused it to overbid for houses. An analyst estimates that two-thirds of Zillow’s current inventory are bought at a higher price than the fair market value.

Real estate is an important part of asset allocation, but profitability is dependent on entry price.

Many high growth companies enjoy high valuations because investors believe their innovative ideas will result in more profit; however, this belief may not be true. Homebuyers use Zillow’s estimates when they search for new properties, yet Zillow cannot rely on the data it generates to make a profit. Just as Zillow cannot rely on its technology, investors should carefully evaluate a company’s ability to make future profit.