What happened
Shares of Redfin (RDFN +0.00%) spiked this week on no company-specific news. Instead, the real estate company's shares climbed higher as mortgage rates fell in response to trouble in the banking industry.
As a result, Redfin stock was up by 25.1% this week, according to data provided by S&P Global Market Intelligence.
So what
Redfin's share price spiked on Monday as mortgage interest rates fell to 6.57%, down from their high of 7.05% just several days before that. The quick drop in mortgage rates was spurred by the recent collapse of SVB Financial's Silicon Valley Bank as well as Signature Bank.
NASDAQ: RDFN
Key Data Points
Mortgage rates mostly follow 10-year Treasury yields, and when the turmoil in the banking industry began to unfold the Treasury yields began falling, taking mortgage rates down with them.
Lower mortgage rates are good news for real estate brokerages like Redfin because lower rates usually create an increase in demand for mortgages.
Now what
Redfin's share price continued to rise throughout most of the week after it was reported that a group of banks would offer another troubled U.S. bank, First Republic, $30 billion in deposits.
Making matters even more uncertain for the global banking system was the fact that the large Swiss bank Credit Suisse received a $50 billion lifeline from the Swiss National Bank this week.
When all of this is added together, investors are betting the Federal Reserve will slow down its current path of aggressive interest rate hikes. The Fed has been focused on raising rates in order to bring inflation down but it now faces a difficult decision to slow, or potentially pause, rate increases so that it doesn't add any more pressure to smaller banks.
While Redfin shares made huge gains this week, long-term investors should keep in mind that the current spike is based on some assumptions that the Fed will cut back on interest rate hikes. But there are still some uncertainties around what the Federal Reserve will do, which means that Redfin investors may not want to get too attached to the latest share price gains.
