Why Opendoor Stock Plunged 32% in September

What happened

Shares of Opendoor Technologies (NASDAQ: OPEN) were pulling back again last month as the housing market continued to tighten, mortgage rates rose, and the Federal Reserve predicted that interest rates would stay higher for longer than it had previously expected.

There was little company-specific news, but given its significant exposure to the housing market (its primary business is essentially home-flipping), the stock fell sharply in response to challenges in the real estate sector.

According to data from S&P Global Market Intelligence, the real estate tech stock finished the month down 32.6%. As you can see from the chart below, it fell mostly in the second half of the month as jitters about the housing market increased and as the Federal Reserve made its interest rate decision and forecast.

OPEN Chart

OPEN data by YCharts.

So what

In addition to the general movement in the housing market, the Fed's announcement, and rising mortgage rates, there were some analyst notes and insider transactions.

First, CEO Carrie Wheeler sold 613,286 shares of the stock, or roughly $2 million worth, on Sept. 15, but the news became public through a filing on Sept. 19. Wheeler still owns more than 17 million shares of the stock.

And Citigroup analyst Ygal Arounian lowered Citi's price target on Opendoor from $3.90 to $2.70 to reflect the lower stock price. Arounian also said the company would earn more net interest income from its cash balance with interest rates higher.

Lastly, the stock's biggest sell-off last month came as the Federal Reserve announced its rate-hike decision, and Opendoor shares fell 20% over a two-day span.

Higher rates pose a significant challenge to Opendoor as they tend to make home prices fall, devaluing the company's inventory.

With the Fed forecasting higher rates for longer, that means it will take Opendoor longer to get back to profitability.

Now what

Opendoor recovered some of those losses over the last few days of the month as tech stocks rallied, but the stock continues to behave like a leveraged beta play on the housing market.

That's not necessarily a bad business model, but with mortgage rates remaining elevated, Opendoor is likely to struggle for the foreseeable future.

The company is in the process of dialing down its inventory to manage through a sluggish housing market, which should help trim its losses even as it shrinks the business.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Opendoor Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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