What happened
Shares of Opendoor Technologies (OPEN 3.38%) continued to march higher last month even though there was little news out on the home-flipping specialist. Instead, the stock seemed to benefit from an improving macroeconomic environment and signs that the housing market is starting to recover.
As a result, the stock finished last month up 52%, according to data from S&P Global Market Intelligence. As the chart below shows, shares jumped toward the end of the month as a number of positive economic data points came out.
So what
Opendoor stock plunged last year as the housing market dried up and peers like Zillow Group and Redfin exited the home-flipping business. Falling home prices essentially render the company's business model unworkable, but in a strong housing market with rising prices, the model has the potential to be highly profitable, and investors now seem to be betting on that.
Toward the end of June, the stock jumped as a number of economic reports showed the housing market starting to strengthen. Meanwhile, Opendoor also reacted positively to the Federal Reserve's decision in the middle of June to pause interest rate hikes as that essentially means that mortgage rates are at or near their peak, a good sign that the housing market has bottomed.
The Case-Shiller report showed that home prices continued to rise in April with gains in all 20 of the metro markets that the index tracks.
The index said that home prices nationally were down 0.2% year over year and unadjusted home prices were up 1.3% from the previous month, or 0.5% after seasonal adjustments.
Meanwhile, new home sales jumped 12% from April to May, the highest volume since February 2022, another indicator that homebuying demand was recovering after a lull due to higher mortgage rates.
Now what
Opendoor's gains last month come after the stock nearly doubled in May even though the business's fundamentals continue to be weak. It has scaled back on inventory due to the earlier decline in home prices, and the company continues to lose money.
However, investors seem to see the stock as a play on the housing market and if prices continue to rebound, Opendoor stock should keep rising.
The stock is still down 89% from its peak in early 2021, meaning that it could have considerable upside potential if the housing market recovers and the business can demonstrate a path to profitability.
