Redfin, Offerpad, Zillow, Compass stocks are falling: here’s why
Proptech stocks are having a bad year. Redfin (RDFN) stock price has crashed by over 62% this year while Offerpad (OPAD), Compass (COMP, and Zillow (Z) have plunged by over 26% and 27% this year.
There are three primary reasons for this crash. First, and most importantly, there are concerns about a recent court ruling that forced real estate agents to slash their commissions.
The ruling also forced the National Association of Realtors to pay a record $418 million in damages. Analysts believe that it will dramatically disrupt the real estate market and affect how the industry works. Real estate agents make over $100 billion in commissions each year.
Therefore, analysts believe that companies like Redfin, Zillow, and Offerpad will be affected since they are the biggest players in the sector.
Second, there are signs that the industry is going through a major slowdown on the back of high-interest rates and inflation. In a statement on Friday, Redfin’s CEO warned that the sector was going through a major recession.
Unfortunately, interest rates will likely remain at an elevated level for a while because of the elevated inflation. The most recent data showed that the headline Consumer Price Index (CPI) rose to 3.5% in March while core inflation spiked to 3.8%. The growing tensions in the Middle East will not help. In a statement, Jerome Powell said:
“Given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.”
Therefore, analysts believe that the Fed may not hike interest rates after all, which explains why mortgage rates have soared to 7% for the first time in months. High mortgage rates reduce demand for homes because they increase the monthly payments.
Analysts believe that the three companies together with the likes of Douglas Elliman and Anywhere Real Estate (HOUS) have more downside to go. However, in the long term, these firms will likely tweak their business models and start growing their revenues and profitability.
There is also a likelihood that the industry will go through consolidation in the next few years.
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