Is Zillow’s plunging stock price a warning about the housing market?

The fairly steady eight-month decline comes despite a red-hot U.S. housing market. And that’s making some investors nervous. Is Zillow a canary in the residential real estate coal mine—and does its tumble forecast a drop in housing prices?

Zillow’s fall from investor grace seems to be tied to a number of factors.

Yesterday’s 10% tumble came after the company, which most people know best for its home valuations and browsing capabilities, announced it was pausing its homebuying business for at least the remainder of 2021.

iBuying, as the program was called, had a busy 2021. The business bought and sold thousand of homes, utilizing the company’s predictive pricing tool as a core component. Homeowners could type in information about their home and receive an offer in 24 hours or less.

Zillow doesn’t fully depend on the algorithm though. It uses humans to confirm things before it writes a check—and the ongoing labor shortage is why it hit pause. (Zillow will still have a flow of new houses coming in for months, as it lets owners preschedule closing dates and plans to honor any existing contracts.)

Word that iBuying was being paused made some analysts worry that Zillow had too many homes in its inventory, signaling a slowdown in the demand. Zillow reportedly bought 3,805 homes in the second quarter, more than any previous quarter.

This wasn’t the first time Zillow has temporarily halted its homebuying operations. Last March, it shut things down because of the spread of COVID-19. That pause lasted five months.

The entirety of Zillow’s recent drop—and its rise over a longer period of time—can’t be attributed to the homebuying operations. When Zillow started that business in 2018, Wall Street hated the idea.

Zillow shares soared over 650% between March 2020 and February 2021. Some of the decline since then has been a natural market pullback. And at the beginning of the year, Zillow’s price-to-sales ratio (a valuation metric that helps determine whether the sales of a company justify the stock price) was 9.02. As of yesterday, it stood at 5.36, its lowest level in over a year.

So some investors could be taking their profits and moving on to other ventures.

The fear some investors have is that by putting iBuying on ice, Zillow is letting competitors, such as Opendoor or Offerpad, gain market share. Zillow has more mainstream name recognition, though. And bulls are counting on that to keep momentum going when Zillow restarts its buying program.

As for the housing market itself, Zillow says it’s not expecting a correction to hit in the next year. Over the next 12 months, the company is forecasting an 11.7% appreciation in U.S. home values. That’s a bit of a slowdown, but Zillow describes the housing market as transitioning from “white-hot” to just “red-hot.”