What happened
Shares of Redfin (RDFN 8.49%) were falling sharply last month as the online real estate brokerage continued to react to negative news out of the housing market.
While there was little company-specific news on Redfin, mortgage rates continued to move higher last month, and the Federal Reserve updated its interest rate forecast, indicating it expected to keep rates higher for longer than it had predicted earlier, which weighed on the market broadly, especially in the real estate sector.
According to data from S&P Global Market Intelligence, the stock fell 26% last month.
As you can see from the chart below, most of the losses came in the middle third of the month.
So what
A variety of news items and broader market sentiment weighed on Redfin last month.
The real estate brokerage itself offered up a number of reports that showed how weak the housing market had become. Redfin said that asking rents have approached record highs based on the nationwide average, and monthly housing costs hit an all-time high as well.
The stock's biggest slide of the month came after the Federal Reserve said it expected to leave interest rates elevated for longer than it had previously expected, which is likely to pressure the housing market.
On Sept. 21, the stock fell 12% in the aftermath of the Federal Reserve announcement, and because of a report that showed existing home sales fell 15.3% from a year ago in August, reflecting that transactions, Redfin's lifeblood, are continuing to move in the wrong direction.
Prices continue to move higher, which would normally be good for Redfin, but higher prices combined with higher mortgage rates are causing prospective homebuyers to wait on the sidelines. Additionally, higher mortgage rates are making potential sellers reluctant to abandon their low-rate mortgages and move.
In the last week of September, Redfin stock stabilized after a pair of analysts upgraded the stock from underperform to hold, reflecting the stock price's dive in recent months.
Now what
Like other real estate tech stocks, Redfin stock boomed during the pandemic, but the stock has collapsed as the housing market hit a wall.
Revenue has declined sharply, and the company has seen its market share fall as well. Profitability has improved, but the company is still operating at a loss.
Redfin still has the potential to disrupt the housing market, but it will need some help from the macroeconomic climate, including falling mortgage rates and an increase in home sale transactions.
