What happened
Shares of Redfin (NASDAQ: RDFN) were moving higher last month as the online real estate brokerage benefited from falling mortgage rates and some positive analyst chatter.
After the stock fell nearly 90% last year, shares look cheap and some investors saw a buying opportunity as they anticipated that mortgage rates have peaked. According to data from S&P Global Market Intelligence, the stock finished the month up 22%.
As you can see from the chart below, the stock surged in the third week of the month and tacked on gains from there.
So what
Given its close connection to the macro-level economy and beaten-down share price, Redfin's movements are often driven by broader economic news.
Like much of the tech sector, the stock drifted lower in the second week of the month as the banking crisis surrounding Silicon Valley Bank played out, but Redfin soared on March 13 after the Federal Reserve reassured the market by telling investors it would guarantee all deposits in the failed bank.
Redfin shares jumped 14% that day as investors' fears of widespread banking contagion were contained. The collapse of Silicon Valley Bank and Signature Bank also had another benefit for Redfin. They helped lower mortgage rates as the benchmark 30-year fixed mortgage rate also fell over the course of the month, finishing March at 6.32%, down from its peak 6.72%.
Naturally, lower mortgage rates are good for Redfin and the rest of the real estate industry as they should encourage a pickup in homebuying activity, which has slowed sharply following the pandemic boom as rates have spiked.
Redfin stock even rose after the Federal Reserve voted to raise benchmark interest rates by 25 basis points as investors seemed to anticipate the end to the interest rate hike regime.
Now what
Over the course of March, Redfin also released its own data showing that demand for home purchases is strong though sales activity has been slow due to higher interest rates.
Redfin shares plunged last year as the real estate market dried up and it was forced to close its Redfin Now home-flipping business. It also announced two rounds of layoffs.
Those moves should help make the company more profitable once the eventual rebound in the real estate market comes. At a market cap of less than $1 billion, the stock still has a lot of upside potential in a healthier real estate market.
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SVB Financial provides credit and banking services to The Motley Fool. Jeremy Bowman has positions in Redfin. The Motley Fool has positions in and recommends Redfin and SVB Financial. The Motley Fool recommends the following options: short May 2023 $16 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.
