"Investors ... don't want an interest-rate-sensitive company that owns homes; they bought Zillow because it's a high-margin, asset-light online real estate play with a fabulous multi-year growth story," the "Mad Money" host said. "In short, it's not what the shareholder base signed up for."
Beyond that, with interest rates on the rise, it's "a terrible time to start flipping houses," Cramer continued, noting that even the homebuilders have cautioned investors about a pause in the housing market.
"It drives me nuts when a great company makes an unforced error. Zillow was in fantastic shape just six months ago," he said. "We loved their attempts to corner the real estate advertising market. Then they decided to move into a totally new, totally risky business at what may be the worst possible time, and the stock has since cratered."
And while Cramer remains a fan of Zillow CEO Spencer Rascoff, who appeared on "Mad Money" in May to discuss the home-flipping move, he couldn't steer investors towards the stock.
"I can't recommend the stock here. You don't double down on the housing market when the Federal Reserve is putting its jackboot on the industry's neck. Hubris is not investable," Cramer said. "That said, it's not too late for Zillow to forget this new business and pivot back to a model that Wall Street loves."