Canaries in the Garage
Stock market action, particularly for tech stocks, has been favorable as of late.
The tech-centric Nasdaq had grown by around 0.7%. Notably, several tech-based real estate stocks were performing significantly better.
Opendoor Technologies, a leading iBuyer, was up by 7% following an earlier double-digit increase, while Redfin, a brokerage disruptor, was 13% higher1.
This notable uptick can be mainly attributed to robust financial results and heightened investor confidence in the real estate sector.
Opendoor released its earnings the previous recently, showing considerable progress in offloading its “old book” of homes.
Put simply, Opendoor had significantly overpaid for much of the inventory it bought before the latter half of 2022. However, it exceeded expectations in both revenue and profit.
Redfin also announced its earnings the previous week. The company successfully expedited the wind-down of its RedfinNow iBuying operation, owning only five homes by the end of the first quarter and using the proceeds to repay $300 million of its debt.
Its quarterly loss was smaller than anticipated, and management is optimistic that the company can achieve profitability in the coming year1.
So, if both companies had released their earnings the previous week, why were their stock prices climbing?
The answer lies in recent economic data suggesting that the housing market may be poised for a recovery as 2023 progresses.
The day’s Consumer Price Index (CPI) report revealed a 4.9% year-over-year rise in inflation, which was less than what experts had predicted.
Investors appeared to interpret this as a sign that the Federal Reserve’s interest rate hikes are taking effect, and there may not be a need for further increases.
This has a dual impact on the housing market. Firstly, while housing costs have risen 8.1% year over year, the rate of increase is slowing, and housing costs are expected to decline in the upcoming months. This is a positive sign for home affordability.
More notably, the day’s lower-than-anticipated inflation figure caused a drop in interest rates. For instance, the 10-year Treasury yield (which generally moves in parallel with mortgage rates) fell by seven basis points following the news.
In essence, a combination of stable prices and lower mortgage rates is likely to stimulate more activity in the housing market. This is particularly true when coupled with a low unemployment rate, as indicated by the recent payroll report.
