What we think about Redfin (RDFN)

Redfin in Three Words: Real Estate Digitization

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Background

As the real estate market has languished and rates have soared, few companies have had a rougher go than real estate platform Redfin in 2022 and 2023.

More homes are lingering on the market and delistings have soared. Who really wants to sell their house and give up their 2% mortgage to buy a new house and lock in a 7% mortgage?

Redfin laid off 470 employees in June 2022 (13% of its workforce) and then slashed another 201 employees in April 2023 (4% of the workforce that remains) as CEO Glenn Kelman explained the company “didn’t have enough work for agents.” Redfin’s market share of US existing home sales was 0.93% at the time of our original recommendation and peaked at 1.16% in 2021, only to fall back to 0.78% today.

As I pointed out last October, Redfin’s overextended Mortgage division got the entire company stuck in hot water after floating its balance sheet with the liability of loans held for sale. In other words, when they couldn’t sell their loans in the secondary market any more, they got stuck holding the bag.

It’s possible we’ve seen the worst; where interest rates will decline and housing market transactions will pick back up again in 2024. Redfin did report that the average monthly mortgage and the average rental payment are both on the decline as interest rates have cooled. That’s led to an increase in listings on Redfin’s platform (up 10% year over year) and hopefully a very welcome turnaround from the company’s dreadful third quarter results.

The market is clearly excited about this, sending Redfin’s stock up 50% during the final months of 2023. I’m not entirely convinced we’re out of the woods just yet, though I will eagerly be watching to see if the Fed actual cuts rates on multiple occasions later this year.

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