What Does A Falling Housing Market Mean For Real Estate Services Stocks?

US housing starts fell to lowest level in over a year. Is this bad news for real estate services stocks like Redfin, Opendoor, and Zillow?
June 22, 2022
Unlock Free Stock Insights + 50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The rate of U.S. home construction fell in May to the slowest pace since April 2021, as rising mortgage rates and inflation weakened demand for housing. U.S. housing starts fell 14.40% month on month, while permits granted to build homes fell 7% from the previous month. 

This slowdown in the construction industry is due to weaker demand as the Fed's interest rate hikes begin to affect consumers. Mortgage rates had their highest jump in 35 years, reaching 5.78%. Consumers are, therefore, pushing back their home purchases due to the increasing cost of financing to buy already expensive homes. 

So what will this mean for real estate services companies?

Opendoor Technologies, Inc

Opendoor Technologies (NASDAQ: OPEN) is predominantly engaged in the iBuying sector. As of Q1 2022, the company had an inventory of 13,360 homes -- up 455% from the previous year. 9,020 of these properties were purchased in the first quarter of this year when house prices were increasing. The slowing demand for property may result in Opendoor discounting its property value over the short to medium term. This, in turn, may lead to lower revenues and larger losses on recently purchased properties. The company's share price is down 68% year-to-date (YTD) and 86% from its all-time high in February 2021.

Zillow Group, Inc

Zillow (NASDAQ: Z) no longer has an iBuying segment due to a decision to pivot from the division in 2018. As a result, the damage from falling demand will likely be lower for Zillow, as it does not have a large stock of properties on its balance sheet that need to be sold. However, the company is the largest online real estate advertising network, meaning a fall in demand will result in lower advertising revenues. The company's stock is down roughly 54% YTD and down 85% from its all-time high in February 2021.

Redfin Corporation

Redfin (NASDAQ: RDFN) is a technology-enabled real estate brokerage with an iBuying segment. iBuying represents the largest share of the company's revenue, at 64% in Q1 2022. During this period, it increased its purchasing of properties by 55% year-over-year to 398 homes. Although Redfin is exposed to the fall in new home demand, it does have some advantages over its competitors. These include a mortgage division following its recent acquisition of Bay Equity Home Loans, and a rental search segment. These new avenues may help shield Redfin from some of the worst effects of the mortgage rate increases, but due to the small size of these segments, it may still be negatively affected. The company's share price is down 80% YTD and down 92% from its all-time high in February 2021.


Unlock Free Stock Insights +50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The Home of Successful Investing.

© 2024 MyWallSt Ltd. All rights reserved.

Services

Content

Social

Company

Support

Resources

This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.