Shares of Redfin (RDFN -3.60%) were down 13.6% this week at Thursday’s close, according to data provided by S&P Global Market Intelligence, amid a barrage of worrisome real estate industry headlines.
While it certainly hasn’t helped that the broader stock market has drifted lower this week — with both the S&P 500 and Nasdaq indexes down more than 2% — Redfin’s losses have been significantly steeper as investors grapple with the implications of bad real estate news for the near-term performance of the leading online real estate stock.
A barrage of bad real estate news
Ironically, much of the bad news came from Redfin’s own data; on Tuesday, the company published a blog post noting that the average homebuyer must earn a whopping $114,627 annually to afford a median-priced U.S. home — up 15% from a year ago, up over 50% since the start of the pandemic, and around $40,000 more than a typical American household earns. That’s also the highest annual income necessary to afford a home on record, Redfin said, even as average wages have climbed only 5% over the past year.
Redfin followed with another post on Thursday morning, revealing that with mortgage rates hitting 8% this week, 2023 is on pace for the fewest home sales since 2008.
“Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low,” explained Redfin economic research lead Chen Zhao. Zhao added that the last time home sales were this low was during the Great Recession, creating opportunities for many first-time homebuyers to buy starter homes in the process.
“[B]ut this time, there’s no deal to be had,” Zhao lamented.
Is Redfin a buy now?
The silver lining: Expectations are low, with Redfin slated to announce third-quarter results on Nov. 2, 2023. Analysts, on average, anticipate the company will reveal a nearly 55% decline in revenue (to $271 million), albeit with its net loss narrowing to $0.20 per share from $0.83 per share in the same year-ago period.
With shares up around 18% year to date, I believe Redfin is a high-risk stock that could go even lower from here. But there are few digital-focused real estate plays better positioned to take advantage of an eventual rebound in the real estate market than Redfin today. If you’re a risk-tolerant investor with a stomach for volatility, it might be worth opening a small position in anticipation of that bounce.
Steve Symington has positions in Redfin. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends Nasdaq and recommends the following options: short November 2023 $12 calls on Redfin. The Motley Fool has a disclosure policy.