What happened
Shares of Redfin (RDFN +0.00%) were falling this week in response to a broader sell-off in the stock market as investors reacted to weak economic data and hawkish comments from the Federal Reserve ahead of its next rate-hike decision on Feb. 1.
As an online real estate brokerage, Redfin is sensitive to interest rates and mortgage rates, and the stock crashed last year after the real estate market fell sharply, the company issued two rounds of layoffs, and it was forced to shutter its home-flipping RedfinNow business.
At the end of last week, Redfin also released a report saying that home sales were slow to start the new year.
According to data from S&P Global Market Intelligence, the stock was down 9.7% for the week as of early Thursday afternoon. By comparison, the S&P 500 had pulled back 2.6% at the same time.
NASDAQ: RDFN
Key Data Points
So what
There was no single reason for Redfin's sell-off, but a number of factors seem to be at play here. First, the company said last Friday that time on market for homes for sale is higher than at any point since April 2020, a sign of the housing market's sluggishness. It said the average home now sits on the market for 44 days, and pending home sales had dropped 32% from a year ago.
However, the report wasn't all bad. Redfin also said that internet searches for homes for sale were increasing and that its Homebuyer Demand Index was up 6% over last month. Additionally, mortgage rates have pulled back since their peak in late October and early November, bringing more buyers back into the market.
This week, investors reacted to the retail sales report and producer price index that both showed the economy cooling, with wholesale prices and retail sales falling from November to December. In the past, investors had cheered that kind of news, as they assumed it meant the Fed would ease back on interest rate hikes. This time it got the opposite reaction, a sign investors may fear the economy will sink into a recession, which would cause real estate prices to fall further, adding to the pressure on Redfin.
Additionally, comments from Cleveland Fed President Loretta Mester also weighed on markets, as she said yesterday that interest rates would have to go above 5% and stay there in order to get inflation anchored at 2%. That could mean that mortgage rates will move back up again.
Now what
After falling nearly 90% last year, Redfin looks oversold, as the company should still gain market in the real estate brokerage industry over time, but the housing market will need to recover in order for the real estate stock to bounce back.
Until that happens, expect Redfin shares to remain mired in the single digits.
