Why Isn't Redfin's Stock Price Higher Right Now?

The real estate market in the United States is hot right now. Home values are up nearly 15% over the past year, and mortgage rates remain near all-time lows. However, real estate disruptor Redfin (RDFN 2.18%) is still nearly 40% off its highs. In this Motley Fool Live video clip, recorded on June 29, Millionacres senior real estate analyst Matt Frankel, CFP, and editor Deidre Woollard discuss what an ideal real estate market might look like for Redfin's business and why the current market isn't necessarily a great one for the company. 

Deidre Woollard: Sanjay asks, "I'm curious why Redfin's stock price isn't through the roof in this environment. What type of real estate market is ideal for Redfin?" Redfin's stock price was through the roof year last year. Certainly, Redfin had a huge year last year capitalizing on the housing boom. I believe there will be another boom for Redfin's stock. There's been a lot of talks certainly last year, less so this year, about it being overvalued and I think that's why I we saw it tick down a little bit this year. 

Matt Frankel: The ideal market for Redfin is a lot of inventory because they're a brokerage at heart. Right now, inventory is very low. Prices are up, but that doesn't make up for the fact that inventory is half the normal level. High prices and high inventory. I would say almost too much inventory would be ideal for Redfin, and Zillow (Z -0.85%) (ZG -0.88%), and Opendoor (OPEN 1.39%) because it adds to the value of the iBuying business. If you can't sell your home quickly, it gives you a lot more of a reason to use an iBuyer. Right now, if I put my house on the market today, it would be sold by tomorrow. I mean, we mentioned controlling costs earlier but one of the other big value-adds of iBuying is you could control the timeline. If I want to just accept the cash offer today and close in 10 days, I can do that with an iBuyer. I can do that right now with any real estate agent I find. The market is that hot right now. If homes are sitting on the market for three and six months because of an oversupply issue, that's when the iBuying process really has value because if I can accept an offer tomorrow and close in two weeks if I want to, and my neighbor's house is sitting on the market for six months, that's a big reason to use an iBuyer like Redfin Now, or Zillow Offers, or Opendoor. I think from both sides of Redfin's business, a slight, not a terrible oversupply, you don't want a flood on the market, but a slight imbalance in supply to the other direction would be an ideal market for Redfin's business.