undervalued

Buy Zillow Stock, Analysts Say, Because the Home-Flipping Market Might Be Undervalued

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Jefferies analyst Brent Thill advised investors to be “opportunistic on a pullback in the shares” of Zillow.


Chris Goodney/Bloomberg


Zillow

shares hit a record high Thursday morning as a trio of analysts lifted their price targets for the online real-estate firm, amid a booming housing market in many parts of the country. In particular, they are bullish on the company’s increasing focus on buying, repairing and reselling houses—the so-called iBuyer market.

That market has attracted new attention after Zillow rival Opendoor announced plans to go public via a reverse merger into a SPAC, or special purpose acquisition company. The terms of the deal have spurred analysts and investors to reassess their views on Zillow’s growing role in that market—and they see an expanding business that might be undervalued.

Truist analyst Naved Khan repeated his Buy rating on Zillow shares (ticker: Z), upping his price target on the stock to $115 from $108. Khan said a side-by-side comparison of the Zillow and Opendoor iBuyer businesses “points to significant room for margin improvement” for both Zillow’s Homes segment and its mortgage business. He said gross margins in Zillow’s iBuyer business should improve, as repair costs for purchased homes come down “with scale and analytics.”

Deutsche Bank’s Lloyd Walmsley likewise repeated his Buy rating on Zillow, while raising his target price to $140 from $115, citing the expected valuation of the Opendoor transaction as evidence that Zillow’s home-flipping business is undervalued. Walmsley said he now values the Zillow Homes business at about $49 a share, up from $25 a share previously. The analyst said Zillow’s valuation can “re-rate higher,” driven by the additional focus on the iBuying segment from the Opendoor listing, continued strength in the housing market, and growth in the company’s mortgage business, among other factors.

Jefferies analyst Brent

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Homes in Black and Latino neighborhoods still undervalued 50 years after US banned using race in real estate appraisals | The Conversation

(The Conversation is an independent and nonprofit source of news, analysis and commentary from academic experts.)

Junia Howell, University of Pittsburgh and Elizabeth Korver-Glenn, University of New Mexico

(THE CONVERSATION) The Research Brief is a short take about interesting academic work.

The big idea

Racial inequality in home values is larger today than it was 40 years ago, with homes in white neighborhoods appreciating $200,000 more since 1980 than comparable homes in similar communities of color.

Our new research on home appraisals shows neighborhood racial composition still drives unequal home values, despite laws that forbid real estate professionals from explicitly using race when evaluating a property’s worth. Published in the journal Social Problems, our study finds this growing inequality results from both historical policies and contemporary practices.

In the 1930s, the federal government institutionalized a process for evaluating how much a property was worth. Often called redlining, this process used neighborhood racial and socioeconomic composition to determine home values. Homes in white communities were deemed more valuable than identical dwellings in communities of color.

Legislative action in the late 1960s and 1970s prohibited this practice. But the law allowed appraisers to use past sale prices to determine home values. Our research shows how using old, race-based sale prices ensured appraisers continued to define homes in white neighborhoods as worth more than similar homes in Black and Latino communities. Racism was baked into the system.

Real estate professionals compound these historical inequalities by assuming communities of color are undesirable, even when real estate demand suggests otherwise.

Why it matters

For most U.S. families, their home is their greatest asset. As their home appreciates in value, their wealth increases, enabling them to fund their retirement, their children’s college educations or unexpected expenses like large medical bills.

The racial inequality in home values

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