Zillow has been doubling, tripling, and quadrupling down on its mortgage business – which continues to lose money.

Why it matters: Zillow Homes Loans is a key part of the company's growth strategy, and an analysis of its current traction highlights the opportunities and challenges on a likely path forward.

Zillow’s mortgage business posted a $167 million loss in 2022, for a cumulative loss of $283 million since 2017.

• Interestingly, while other mortgage businesses have enacted layoffs and race to cut costs, Zillow is keeping its mortgage operating expenses (OpEx) steady.
   

• While revenue dropped in 2022, OpEx investment remained high – illustrating that Zillow is continuing to invest in mortgage without pressure to turn a profit.

To succeed, Zillow Home Loans must attach loans to the leads delivered through Zillow’s premier agent and flex programs.

• Zillow reported that in Raleigh, one of its test markets, customer adoption of Zillow Home Loans increased from 15 to 20 percent.
   

• This mirrors the progress of Redfin, which reported 21 percent mortgage attach in February compared to 17 percent in Q4.

Yes, but: Attaching mortgage is nothing new for traditional brokerages.

• HomeServices of America and Prosperity Home Mortgage have achieved 25 percent attach rates at a national scale of over 45,000 funded loans annually – 10x the size of Zillow Home Loans.
   

• Zillow and Redfin are both below the industry average, and may likely top out at 25 percent, something of a universal constant in the world of attaching mortgage.

Zillow's next act, announced in early 2022 after Zillow Offers was shuttered, included plans for significant revenue growth through mortgages (adjacent services).

• A key component of this strategy is integrating Zillow Home Loans into Zillow Flex.

Behind the numbers: Zillow generated about 75,000 Flex transactions in 2022 – if the company scales Zillow Home Loans to 50 percent of its markets with a reasonable 25 percent attach rate, it would close around 9,300 loans and generate around $84 million in additional revenue.

• A possible end goal could include doubling Flex transactions and launching in 80 percent of Zillow’s markets, with a stretch 30 percent attach rate – leading to 36,000 loans and $324 million in revenue.
   

• These are large numbers with equally large assumptions; scaling a national mortgage operation is hard (and expensive and people-intensive). 

The bottom line: Zillow is experiencing some early wins in its journey to integrate Zillow Home Loans with its Flex program – but the path forward is uncertain, long, and expensive. 

• Even after years of investment, Zillow Home Loans (and Redfin) is still playing catch up to the tried-and-true mortgage attach methods of the nation’s largest real estate brokerages.
   

• A multitude of factors need to go right for Zillow to hit its goals: doubling its Flex program, convincing thousands of Flex agents to promote Zillow Home Loans, and standing up a national mortgage operation to handle 10x the volume.