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Why Redfin Stock Plunged on Friday

By Joe Tenebruso - Mar 27, 2020 at 6:08PM

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The COVID-19 coronavirus pandemic is disrupting the U.S. housing market.

What happened

Shares of Redfin (RDFN 5.01%) fell more than 14% on Friday. A host of factors are weighing on the discount real estate brokerage's stock price and the housing market as a whole. 

So what

As the number of cases of COVID-19 continues to rise rapidly in the U.S., it's looking increasingly likely that the economy will fall into a recession. In turn, home sales are expected to decline sharply in the months ahead.

In response, Redfin has canceled open houses and suspended its iBuyer program. Investors are concerned that the company will see a drastic decline in home listing fees and potentially suffer large losses on the homes it has already purchased.

A downwardly sloping line chart.

Redfin's stock fell sharply on Friday. Image source: Getty Images.

Now what

With many people unable to work, suffering large losses on their investments, and fearful that going outside will get them sick, there's little doubt that the housing market is headed for a rough patch. Redfin is promoting virtual tours of homes and digital closings where available, which could help to mitigate some of the damage.

Additionally, CEO Glenn Kelman will not take a salary for the rest of 2020, and the rest of the company's leadership team is forgoing cash bonuses this year. Redfin will use these savings to temporarily boost agent salaries to offset lost sales-based compensation. It's a classy move, and it could help to strengthen employee retention during the COVID-19 crisis.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Redfin. The Motley Fool has a disclosure policy.

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