What happened

Shares of technology-powered residential real estate company Redfin (RDFN 2.48%) are down 5.5% today as of 11:20 a.m. ET, continuing the horrific year the company's shareholders are having. The stock is down 87% so far in 2022.

There was no specific news out today to cause the slump. However, the housing market is getting hammered right now. Mortgage rates are soaring to the highest level in a decade and a half, thanks to the U.S. Federal Reserve's steep interest rate hikes to try and tame inflation. As of today, an average 30-year mortgage rate is just over 7%.

So what

In its fight against inflation, the Fed has called out housing prices as one key area it wants to cool off. A spike in mortgage rates will certainly do the trick, but it will take time to translate into lower home values.  

The collateral damage has spread to Redfin, which last week reported that home selling prices remain high because there just simply aren't that many homes available on the market. However, signs of values finally falling are starting to show. Some markets like the California Bay Area are coming down slightly, and Redfin said some homebuilders are offloading houses at as much as a 20% discount.  

Now what

Existing home sales are seizing up because of a nasty combination of too little inventory, high mortgage rates, and high home values. That's a bad omen for Redfin's upcoming third-quarter 2022 earnings. Back in Q2, the company had reported a 29% year-over-year increase in revenue to $607 million, but a net loss of $78.1 million.  

Redfin isn't resting on its laurels. It also announced last week a partnership with Down Payment Resource, a company that helps connect homebuyers with down payment assistance programs. According to its research, Redfin said the average homebuyer made a down payment of $62,500 in July, almost double the average three years ago before the pandemic.  

Going forward, keep an eye on Redfin's liquidity. At the end of June, it had $462 million in cash and short-term investments on hand, but nearly $1.7 billion in debt. The stock trades for about 1.3 times market cap to gross profit. If Redfin can outlast this downturn, shares could soar. But for now, treat this one with care as a high-risk, potentially high-reward investment.