I have read this article and the one before it and it sounds very much like some folks who fell in love with their own idea and got early feedback that it was "working", went all in and never checked to see if it was still working.

The lesson should have been, "When you perturb an emergent system, never assume that the current state is the new steady state."

The most interesting thing for me back when I was in college was a discussion on of the professors on feedback systems gave on LA's freeway systems. There are three major interconnected freeways, 405, 110, and 10 which at the time formed a triangle. Now there is the 105 which cuts off the tip so perhaps a smaller triangle. The professor shared a paper that tracked "brake waves" which were aggressive braking maneuvers that would "propagate" backwards on crowded freeways. The paper showed that at the right time of day, an aggressive braking on any of these three segments could result in your own braking wave to "lap around" and hit you again. Sort of a ringing of the system.

This sort of effect can be present in any system that isn't centrally organized but is instead a result of the interactions within the system. Buying and selling real estate is such a system, especially when you are a 'market maker' in that system.

There are a lot of papers on how HFT trading algorithms interfere (both constructively and destructively) with each other on wall street exchanges. Just interesting stuff in my opinion.

I found I could "break" the wave by letting a gap grow in front of me that would absorb the wave, and I wouldn't have to brake to a stop (and so my clutch would last longer).

It never occurred to me to write a paper about it :-)

How do you prevent someone from just filling the gap? If it's large enough to absorb the wave, someone will fill it just out of spite.

Besides saving your clutch, you can do this type of brake-early maneuver at stoplights. Decelerating early and coasting at a lower speed means you don't have to stop and can increase your gas mileage significantly.

On further reflection, that's not necessarily selfishness, more that they don't understand what I am trying to do, but there's no way to communicate complex information car to car on a highway.

Bluetooth had started to become standard in all cars, and as I was working on a train project, the idea occurred that if we could link all the freeway cars in series, and treat it as one long train, then I would essentially just have to steer, and we all would avoid brake-waves.

One car only needs to be able to talk to the one car in front of and the one car behind itself.

Which is better: more vehicles on the freeway at lower average speeds - or fewer, faster ones?

This is a problem that can probably be solved someday with self driving cars collaborating to make highways huge coordinated conveyor belts.

Do you not have them in the US?

Additionally the removal of hard shoulders is just dangerous.

Lol, why adopt the UK's variable speed limit when we have already de-facto reinvented the Autobahn....

Also if you WOT a modern car you get the instant response without the ecu calculating pedal angle, comparing to accelerator history, humidity factors etc etc but kiss fuel efficiency bye bye. There are mods and tunes that reprogram the fuel map to cut out this processing time

I also drive a big turbo family sedan and am used to saying 2 Mississippi before the engine pulls at full boar

Unfortunately I cannot find an easy good reference on what exactly that difference is quantifiably. Also many of the Electric cars right now are higher end even sporty vehicles, and more likely to have a throttle mapping that is more direct.

https://www.sciencedirect.com/science/article/abs/pii/019126...!

A simplified theory of kinematic waves in highway traffic, part I: General theory

Also:

https://www.sciencedirect.com/science/article/abs/pii/019126...!

A simplified theory of kinematic waves in highway traffic, part II: Queueing at freeway bottlenecks

If Zillow was the only iBuyer in a particular market, then that ceiling would likely have held, as all other non-zillow sales would still be operating under the loan approval constraint, and that would get reflected in the comps. But in a market with multiple ibuyers, none of which are capital constrained, it would make sense that they run up the prices against each other, past what the local homebuyers can afford.

Not sure how much that actually played a role here. But could be fun to do some back of the napkin math to see if that was the case in some of these markets.

In the more irrationally-hot markets, why assume that housing is even being purchased on a mortgage by your average home-buyer, rather than being purchased cash-in-hand by a private or corporate investor looking to park wealth they've already generated? (Even if that isn't the majority of houses in those markets, the sales like that that do happen would still have an impact on property values in the affected neighbourhoods.)

If big institutional money is going to cause a frenzy it would need to be irrational money managers that somehow clear their purchases through a panel and none of them say anything. Some point out that blackrock is on the other side of this zillow unloading but they have trillions in assets and only 60 billion in real estate. This is the largest money manager in the world and thats all the exposure they have.

Even now, with retail being the most powerful they've ever been in human history, they might be able to squeeze a single, small or mid cap equity (GME being the most famous example) but they cannot move sectors of markets, much less create a generalized bubble in ANY asset class.

Crypto 2017 is the only "bubble" which you might claim was retail-driven (even then, you'd need to provide evidence for such a claim), and even that had institutional money such as Grayscale, high-net-worth speculators, and algotrading from high-net-worth speculators driving the bubble. Not to mention that was a tiny bubble relative to any equity market bubbles.

It's well-known Tech bubble 2001 was driven by investment banks. It's even more well known that the 2008 bubble was driven by investment banks, hedge funds, and derivatives trading. The current $2.5T+ market cap crypto bubble has been formed by large institutional buyers, high net worth individuals, and corporations pumping money.

Dutch Tulips, South Sea Trading Company stocks, 90s Japan were all from institutions or high-net-worth individuals (nobles, royalty, corporations, etc) as well. Your post really couldn't be further away from reality. The historic bond bubbles have all been inflated by institutions and governments. Making a claim that even one bubble, much less "most" bubbles are caused by retail, is an outrageous claim which requires extraordinary evidence that you would need to provide.

You're embarrassing yourself at this point between the barber and stating housing was "clear cut retail debt" in 2007 when it was actually a trillion dollar derivatives market that caused the bubble/crash, significantly driven by predatory/abusive from the mortgage lending side? Where do you think retail got all the money for the houses? "the entire crypto _thing_ is retail" uh, no, it's not. Tesla bought over a billion in bitcoin earlier this year, and large investment banks opened crypto desks early this year. And bringing up companies like Blackrock(?) which I didn't mention, oh my you are all over the place. Grayscale is not Blackrock... Can you present any evidence at all that retail has caused historical asset bubbles?

Sorry, you're just straight making things up and have a very poor or nonexistent understanding of markets. I won't waste my time here any longer.

https://www.investopedia.com/terms/h/hnwi.asp

No, you're wrong on this and basically every single other statement you made. High net worth individuals are typically considered separate from retail traders, and yes, just because they have a lot of cash/assets. Part of the reason I kept saying [institutions OR high-net-worth individuals]. I didn't think that was such a challenging concept.

> Derivatives made things worse but they were...derivatives, they're called that for a reason dimwit.

>Please get real on this because you sound like a clown.

Real classy. Well at least I know now you were here just to be pompous and find a way to broadcast your lack of understanding of the market.

FYI, the reason this is happening is that interest rates are so low that people are desperate for yield, and rental yield fits the bill.

There are a lot of benefits:

- professionally managed properties. Most small time landlords are incompetent -- the horror stories you see about landlords being petty or vindictive is from the small time landlord, not the professional manager.

- lower rental prices for properties people want to own. Institutional investors can move funds more quickly to increase rental stock where it is most in demand. Here, too, the yield will fall, which is another way of saying lower rents.

Moreover despite the moral panic by journalists that ordinary households are being priced out, this doesn't actually happen because most institutional investors operate in unconstrained areas, where home prices track construction costs, at most with a small delay. In these areas, an increase in renter demand will result in more property built much more quickly if the institutional investors participate. This actually drives down prices over the long term by increasing supply.

However in constrained areas, this would drive up prices for SFHs. But I thought people weren't supposed to buy SFHs in constrained areas - and institutional investors have been in the multi-unit market for over a century.

But construction costs track home price so this doesn't prevent an unbounded faster than inflation growth.

lol.

2007 was the end of a long road, paved by unsophisticated "money managers" and doubly unsophisticated "bank regulators" and even more unsophisticated "politicians" since WW2.

There are people buying houses for more than their rental value right now where I live. Because there's one crime-ridden trailer park maintained on the freeway nearby to make them all within a certain distance of a "disadvantaged zone" and thus every former manufacturing country factory boss looking to move to the US only has to lose $400-$500 dollars a month to buy his way to the top of the green card list.

> Under regulations ... an EB-5 investor would need to invest ... a minimum of $1 million normally or $500,000 in economically disadvantaged areas...

> You'll need to plan on having your money tied up in the business for several years. When you first get your green card, your permanent resident status will be conditional for two years. During the 90-day period before the end of the two-year conditional residency, you'll need to submit a petition to remove the conditions—to show you invested the required amount and created ten jobs. These two years and government processing times result in your money being parked until you finally get your unconditional permanent residency.

https://www.alllaw.com/articles/nolo/us-immigration/investme...

Edit: Not OP, just guessing

So practically it's pretty cheap to get yourself to the top of the list for permanent residency. All you have to do is buy a couple of $500k houses, rent them for whatever rent you can get for them, claim you created 10 jobs by hiring maintenance guys and landscapers and whatever else to maintain them, and then when you've got your paper from the US government you can turn around and sell them for what you paid for them (or even a little less, who cares, you bought your American residency).

The rules were changed from the original law to not only allow properties in economically disadvantaged areas but near them.

As I said, that's why there's a trailer park which resembles some "third world" country slums right on the freeway in the wealthier north Dallas suburbs where I live. All of those realtors selling rental houses to Chinese factory bosses, Russian mobsters' children, South American cartel finance guys, etc need them to be near the trailer park to qualify for the program. Similarly, via a ridiculous string of foot paths and bike lanes, Hudson Yards in NYC was determined to be economically disadvantage due to its proximity to Harlem, so they could also sell apartments that no one else wanted to Chinese factory bosses, children of Russian mobsters, South American cartel finance guys, etc.

You can always just stick your money in an ETF.

(Of course, taxes and regulations complicated this discussion.)

It doesn't complicate the discussion, it is the discussion. Basically the only reason foreign investors are buying real estate in North America is because of issues directly related to regulations and taxes.

This is particularly pernicious because while there is a ton of housing, very few actual units in a city are ever on the market at once, making it easier for a well capitalized buyer to corner. My small city (pop ~1mil) only has 638 units for sale according to Zillow, which is pretty small all considered.

0 - What an unfortunate name we’ve settled on. Reminds me of the era where every cheap infomercial product had to ape Apple naming conventions.

- It's easy to get wrong. If you see a lot of opportunity all the time, it's your model that's wrong, not the market. Very trivial things can mess up your model, like not understanding what the input data means.

- Good trades are hard to get, common rule of thumb that your boss will tell you. Someone selling a house too cheaply? Either there's lots of other buyers or there's something about the house that you didn't think of.

I remember seeing an FX volatility model that almost never traded. It always said "the market is right, plus minus costs". Now and again it would ding and we'd carefully try to get it done in the market, you wouldn't do like Zillow and surprise all the sellers with a massive payday.

I also wrote an arbitrage bot from Bitstamp to MtGox once. I looked at it, didn't turn it on. Percentage wise it was a massive arb, but you couldn't see this in the raw numbers: credit risk on one of the legs. It just shows you that you still need to understand how things actually work. The model is only a calculator for quantifying opportunities that you understand.

This is perhaps the oddest thing about this story. Zillow must have run into several situations where they were paying more than what's sensible, and their staff must have reported this? Surely at the start of an algo buying program, you are vigilant to evidence that the program is wrong?

Counterparty risk, that is where the profit came from. I did the same thing, but went into it knowing what the exposure was and how to mitigate it: don't leave crypto in an exchange's hot wallet any longer than it takes to execute a trade and take profit only on exchanges that you could legally pursue in the event that they fail to execute a USD transfer. I also anticipated the debanking that followed... as far as I know I'm still blacklisted by one bank and two money transfer services. What I didn't anticipate was how many exchanges would get hacked and what that would look like to anybody who aggregated the transactions: I get cold called by actual financial institutions a few times a year, always looking to bulk up their dark pools - they somehow have it in their heads that I'm sitting on billions of dollars in BTC. They likely don't have enough of the puzzle to put together the fact that arbitrage doesn't take much when you only need three confirmation blocks - USD wire transfers were the bottleneck.

The issue with that arbitrage is that it was always one-sided. If you're arbing 2 equivalent markets (e.g. name trading on two different US exchanges), you'd expect to buy and sell on both markets in equal amounts, on average.

Bitstamp vs Mt Gox arb required traders to always buy BTC on Mt Gox and sell on Bitstamp (which is a strong indicator of cp risk). This makes inventory management very difficult - especially towards the end of Mt Gox where fund withdrawal times were of the order of months.

It was madness trying to code around people not thinking about their effects on the market and still turn a profit. Spoiler: we never did turn a profit on bozo powered listings, because at some point, it’s better to free the inventory space instead of waiting for the bozo to sell their items and let the price climb back up over the course of months or years.

It sounds like a really interesting story that’s missing a few steps due to space - it’d make a great blog post in detail!

I think about that a lot these days given the absolute oceans of capital sloshing around. I'm glad you got a piece of it! But this is a really weird way to redistribute excess wealth.

So this has some obvious issues: * Areas without a ton of very similar houses that have also sold recently will basically have no 'comps' to use. * It's really easy to keep identifying differences (pros/cons) until the adjusted prices equal each other but it's hard to know if all of the meaningful differences have actually been identified. * It gives average homes and average buyers a huge advantage. This model assumes that the housing market is hot but not hot enough that someone will pay 10-15% more for some specific feature. Anything unique to a home/property is only going to be worth a fraction of the time & money it would cost to add. Anything super common (kitchen remodel, finished basement, etc.) can actually add 100% or more of it's cost to the houses value because the buyer is paying with 5x or more leverage so paying a bit extra to have it included. This is also why it's often better to fix a few things as the seller than give a discount on the sale price - the buyer will often pay a premium to get things move-in ready since it doesn't impact their monthly costs significantly.

Bidding algorithms can model the price of winning the auction, you can maximize profit without fancy RL

After a 14% cut, that would still be an absurd YoY increase (I think still the largest single year increase in a major metro in the US on record?).

I get that Zillow is losing 14% - but the market is not yet even back to normal appreciation - let alone "crashing".

https://fred.stlouisfed.org/series/PHXRNSA/

https://www.goodreads.com/book/show/23209924-the-water-knife

A single padded first sale on a new development would be factored into offers. Classic wash trade.

I think the environmental crisis is already effecting the supply chain, I don't think we humans can see it yet. Are we Soviet Russia circa 1931, pretending like everything is going swimmingly while an enormous amount of us are about to starve?

Second, there are droughts popping up all around the world, our fisheries are collapsing but our supply chain might be absorbing the problems of it until suddenly it doesn't anymore.

That is my deep worry -- that we are seeing the start of a generalized system collapse.

the lenders "knew" of the bad loans, but because these lenders are going to on-sell the loan to some other investor, they didn't care as they profit off the sale, rather than the loan repayments. It's a moral hazard.

Official #1: Btw (by the way) that deal is ridiculous. Official #2: I know right...model def (definitely) does not capture half the risk. Official #1: We should not be rating it. Official #2: We rate every deal. It could be structured by cows and we would rate it.

And the parts that were so junky they couldn't be rated got remixed into another deal to get rated.

Its definitely wrong to make this assumption, but the people who got paid are all incentivized to turn a blind eye.

Well it's obviously true. Take your good bond to get paid first from 1000 junk bonds. Then your 999 worse bonds get paid last. Even during the mortgage crisis, not all of the junk bonds returned zero. So there is some number of junk bonds that can be combined into a good bond and worse bonds.

The problem is that people estimated that number to be lower than it actually was. It was a quantitative failure.

Or Opendoor buys a house from themselves at way over market to trick Zillow into bankrupting itelf.

I saw quite a few houses that sold a few years prior for much lower prices. The disparity in estimated values and previous sales versus the list price was astronomical in most cases. The banks will happily give you a loan for whatever price so there is no check on the runaway prices except for your own personal knowledge of the historical market demand in an area.

One thing to keep in mind about list prices: if the sellers do a good job of estimating the current market price, then the house will sell quickly. If you're checking listings infrequently, there's going to be some sampling bias in the listings you see; overpriced houses that aren't selling will be disproportionately represented in active listings.

it was purely about marketing driving up its own value via poorly considered metrics that invariably included positive reenforcement loops. eg, yahoo sells an ad for a company which sells ads on yahoo.