Zillow over payed for houses, then couldn't sell them as quickly as expected because the COVID housing market took a down turn, and so they sold them at a loss, lost millions of dollars, and closed the house buying business. They also made plenty of low offers or under-payed for houses at times. They were trying to break even on home value on the hole, but couldn't reign in the wild swings of gains and losses. Their entire business model was based on the seller fees, not on the house value.

In any case, they closed that business in 2021, and has since sold the rest of their inventory.

I don't see how that would have a lasting effect on housing prices though. I'd attribute it more to a housing shortage due to people buying up real estate, and keeping it as rentals. Even when operating, Zillow aimed to resell houses within 3 months, not hold on to them as investments.