What happened
Shares of Redfin (NASDAQ: RDFN) fell on Wednesday after the real estate services company released some alarming housing data. As of 12:33 p.m. ET, Redfin's stock price was down more than 7%.
So what
Soaring mortgage rates drove home listings and sales sharply lower in September, according to Redfin. Home sales plummeted 25% year over year, while new listings plunged 22%. These were the largest declines on record, other than those during the early stages of the pandemic.
"The U.S. housing market is at another standstill," Redfin economics research lead Chen Zhao said in a press release.
Typically, housing prices fall when mortgage rates surge, as higher interest costs make owning a home less affordable. But Zhao said home prices are being "propped up by inflation" and low inventory levels. Redfin noted that although the median home sale price was down 0.5% sequentially in September, it was still up 8% year over year.
"Many Americans are staying put because they already relocated and scored a rock-bottom mortgage rate during the pandemic, so they have little incentive to move today," Zhao said.
Now what
Unfortunately, economic trends suggest the housing market will remain under pressure in the coming months.
"With inflation still rampant, the Federal Reserve will likely continue hiking interest rates," Zhao said. "That means we may not see high mortgage rates -- the primary killer of housing demand -- decline until early to mid-2023."
That's concerning, as Redfin's core brokerage business relies on commissions from home sales to generate revenue. Fewer transactions mean lower profits -- and likely mounting losses -- for the struggling real estate services provider.
10 stocks we like better than Redfin
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Redfin wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of September 30, 2022
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short November 2022 $17 calls on Redfin. 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.
