What happened

Shares of Redfin (RDFN 1.25%) sank as much as 18.1% this week, according to data from S&P Global Market Intelligence. The year of pain continues for the real estate platform, with shares now down 88.5% year to date. As of market close on Thursday, Oct. 13, shares of Redfin are down 15.2% this week.

So what

Redfin didn't give any updates on its underlying business this week, but it released some reports that point to a slowing housing market. According to its research, new listings for home sales were down 19% year over year last week. Requests for home tours were down 25% from the prior-year period. More anecdotally, searches for "homes for sale" on Google were down 35% from last year and at the same levels as in March 2020, when many industry sectors shut down.

Why is this happening? Because of a rapid rise in mortgage interest rates, which recently hit 7%. This is up from under 3% a year ago and is making housing purchases unaffordable for many people. For reference, the monthly mortgage payment on a median-priced home is up 51% year over year in the United States. This will start to reverberate throughout the housing market in the coming quarters and will likely get even worse if mortgage rates rise further.

With the Federal Reserve set on hiking interest rates until inflation disappears, it looks as if more pain could be coming for the residential real estate market through the end of 2022 and into 2023. This could have a negative impact on Redfin, which makes its money by helping people buy and sell homes. With the company already unprofitable, it is not surprising to see investors continue to bail on Redfin stock.

Now what

If you own shares of Redfin, you are no doubt disappointed about the stock's brutal performance over the past year. There is also a ton of risk embedded in the stock with the housing downturn and the business's negative earnings. However, with the price in the gutter, now could be a good time to pick up some shares if you believe in its business model over the long term. With the market cap below $500 million, we might look back a few years from now and think the investment community was much too pessimistic about Redfin's future.