The residential real estate market was frozen in November, with economists claiming the principal factor to be the rapid increases in mortgage rates. Home sales declined 7.7% sequentially and 35.4% year-over-year in November, marking the fourth consecutive month of declining home sales.
The Federal Reserve's aggressive rate hikes have made borrowing expensive. This, along with elevated construction costs, has caused a housing recession. According to Lawrence Yun, chief economist at the National Association of Realtors, home sales will decline by 7% next year, and the national median home price will increase by 1%.
With uncertainty surrounding the real estate market, it could be wise to avoid fundamentally weak real estate stocks Opendoor Technologies Inc. (OPEN) and Redfin Corporation (RDFN).
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate. The company's platform enables consumers to buy and sell a home online. It also provides title insurance and escrow services.
OPEN’s adjusted gross profit for the fiscal third quarter ended September 30, 2022, declined 52.8% year-over-year to $110 million. Its adjusted net loss rose significantly to $328 million. Its adjusted EBITDA loss came in at $211 million, compared to an adjusted EBITDA of $35 million a year ago.
Additionally, its net loss per share attributable to common shareholders widened significantly from the prior-year quarter to $1.47.
OPEN’s loss per share for the quarter ending December 31, 2022, is expected to widen 177.6% year-over-year to $0.86. Its revenue for the current quarter is expected to decline 36.5% year-over-year to $2.43 billion. The stock has fallen 82.1% over the past six months to close the last trading session at $0.97.
OPEN’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the F-rated Real Estate Services industry, it is ranked #38 out of 40 stocks. It has an F grade for Growth, Stability, and Sentiment and a D for Momentum and Quality.
We have also given OPEN a grade for Value. Get all OPEN ratings here.
Redfin Corporation (RDFN)
RDFN operates as a residential real estate brokerage company. It operates an online real estate marketplace and provides real estate services, including assisting individuals in buying and selling homes. It also provides title and settlement services, originates and sells mortgages, and buys and sells homes.
RDFN’s gross profit for the third quarter ended September 30, 2022, declined 54.4% year-over-year to $58.08 million. The company’s loss from operations widened 327.4% from the year-ago period to $85.02 million.
Its net loss attributable to common stock widened 339.2% year-over-year to $90.52 million. In addition, its net loss per share attributable to common stock widened 315% year-over-year to $0.83.
RDFN’s loss per share for the quarter ending December 31, 2022, is expected to widen 302.5% year-over-year to $1.09. Its revenue for the current quarter is expected to decline 30.3% year-over-year to $448.27 million. Over the past year, the stock has fallen 90.3% to close the last trading session at $3.90.
RDFN’s bleak prospects are reflected in its POWR Ratings. The company's overall F rating translates to a Strong Sell in our proprietary rating system. It is ranked last in the same industry. In addition, it has an F grade for Growth and Sentiment and a D for Stability and Quality.
Click here to see the additional ratings of RDFN for Value and Momentum.
OPEN shares were trading at $1.04 per share on Wednesday afternoon, up $0.07 (+7.46%). Year-to-date, OPEN has declined -92.88%, versus a -19.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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