Why Redfin Stock Lost 34% in October
Shares of Redfin (NASDAQ: RDFN) were moving in the wrong direction last month as the online real estate brokerage was pressured by rising interest rates, ongoing weakness in the housing market, and a verdict against the National Association of Realtors (NAR), finding that the lobbying group artificially inflated real estate commissions.
The company also got a reprieve from a deal with Apollo Capital Management as the private equity company agreed to inject up to $250 million in financing into Redfin, which will allow the company to repurchase some of its existing convertible notes.
Image source: Redfin.
According to data from S&P Global Market Intelligence, the stock lost 34%, finishing the month below $5/share. As you can see from the chart below, the stock fell steadily over the course of the month, with a brief gain on the news about the Apollo financing on Oct. 24.
Redfin is stuck between a rock and high mortgage rates
Mortgage rates continued to move higher last month, adding to pressure on Redfin and its real estate tech peers, like Zillow and Opendoor. High mortgage rates, which approached 8% on a 30-year fixed loan, have driven a number of prospective homebuyers from the market and caused existing home sales to plunge, now down nearly 50% from their peak during the pandemic.
There was no particular news item that drove Redfin stock lower last month. A hotter-than-expected consumer price index report on Oct. 12 helped push the stock down 6% that session as it seemed to convince investors that interest rates would remain elevated. The September existing home sales report on Oct. 19 showed existing home sales fell by another 2%, or 15.4% from a year ago, a further sign that the housing market continues to cool.
Finally, the stock fell another 6% at the end of the month on the verdict against the NAR. Though Redfin wasn't directly implicated in the lawsuit, the end of the 6% real estate commission regime could mean fewer transaction dollars for the whole industry, including Redfin.
Redfin bounces back in November
After a forgettable October, the stock suddenly turned things around in early November, jumping on signs from the Fed meeting that indicated the central bank could be done raising interest rates and then again when it reported its own third-quarter earnings report, showing off an improvement in profitability despite the headwinds in the housing market.
While the company is still at the mercy of the housing cycle, the stock has a lot of upside potential in a recovery, especially if it can continue to improve its unit economics.
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Jeremy Bowman has positions in Redfin. The Motley Fool has positions in and recommends Opendoor Technologies, Redfin, and Zillow Group. The Motley Fool recommends the following options: short November 2023 $12 calls on Redfin. The Motley Fool has a disclosure policy.
