What happened
Opendoor Technologies (OPEN 3.38%) was one of a number of real estate stocks that were heading lower today. At the close on Tuesday, the stock was down 10.5%.
In recent months, the home-flipping specialist has proved to be highly sensitive to interest rates and mortgage rates, and that explains why the stock headed lower on Tuesday.
An unexpected rise in job openings in August and comments from two Fed presidents helped send Treasury bond yields to 16-year highs, lifting mortgage rates and squeezing Opendoor stock in the process.
So what
Opendoor's business model is built around buying homes and making improvements, with the goal of making a profit on the resale. In a strong housing market, it's a good model, but it's been a flop currently as mortgage rates continue to rise and home sales remain weak.
The prospects for extended challenges in the housing market seemed to increase today as the 10-year Treasury yield rose to 4.8% and a 30-year fixed-rate mortgage reached 7.72%, according to Mortgage News Daily, putting monthly payments out of the reach of many prospective homebuyers.
Now what
Opendoor has already been cutting back on homebuying given the tightness in the housing market and the impact of rising rates. And with the expectation that rates will remain elevated through the next year and possibly into 2025, it's less likely that the stock will experience a recovery anytime soon.
While Opendoor is well capitalized with $1.2 billion in cash and equivalents on its balance sheet, the company still had a loss based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $168 million.
With mortgage rates expected to remain high, reaching profitability will become more challenging, and that explains why the stock fell today.
