A Worsening Slump for Redfin

Mortgage News February 16, 2023

As the housing market outlook weakens, shares of Redfin Corp. fell Wednesday last week.

The digital real estate company’s share fell 8.5% after Bernie McTernan, Needham & Co Inc. analyst, cut his 2023 forecast for the housing market and lowered estimates of revenue for Redfin and its peers Compass Inc. and Zillow Group Inc. According to McTernan, he is “taking a more conservative approach” to the future market share gains of Redfin especially in 2024.

Accordion to McTernan, management seems to have a sense of urgency about getting the cost structure right (layoffs, price increases), but it is unclear if these measures will go far enough. This makes marketshare gains and growth increasingly important.

Previously forecasting a 10% decline, McTernan said that this year, the expected total volume for US home sales will be down 18% from a year ago.

According to the note, housing affordability has reached a 15-year low because of rising mortgage rates and home prices. He added in the note that as housing supply remains tight, we might find our housing affordability estimates tested by worsening macro conditions.

McTernan wrote that they think that Z and RDFN equity will be driven higher by revenue growth, which we do not believe will be as easy as they think due to -36% and -37% declines in existing home sales in November and December, respectively.

As of Wednesday last week, Compass was up 5.4%, while Zillow was down 5.3%. The company’s recent cost-cutting efforts have contributed to Compass’ position as a top pick among digital real estate companies.

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