The new year is off to a rocky start for some of real estate’s biggest publicly traded residential brokerages, which saw their shares tumble on concern that rising interest rates could stall housing market growth.
Compass, which closed at an all-time low yesterday, staged a late-day recovery, gaining 1.7 percent to $8.53 on the New York Stock Exchange. That’s still down 53 percent from its valuation of $18 per share ahead of its April initial public offering.
Redfin stock fell 4.1 percent to $33.14 per share, Opendoor fell 3.7 percent to $11.36 per share, and Zillow dipped 1.2 percent to close at $56.68.
“Real estate tends to be tied to interest rates,” said Jason Helfstein, an analyst at Oppenheimer and Co. “Just look at the broad swath of real estate-related companies. I think they all have been weak [due to] concerns of the federal interest rate.”
Douglas Elliman, which spun off last year as a public company, started trading Dec. 30 at an opening price of $10, which is exactly where it closed on Friday, just over a week later,
Interest rates have been historically low during the pandemic, boosting the housing market to the hottest it’s been in years. But with the Federal Reserve preparing to raise short-term interest rates, and mortgage rates climbing to a 20-month high, experts are speculating that it could spark a buyer retreat.
If brokerages like Compass are losing billions in market value while the market is hot, the idea is that some investors may not want to stick around if it cools.
Compass isn’t alone, but such a dive is still a noticeable dent in the company, which has now lost $3.6 billion since it was valued at $7 billion in April.
“The weakness in the stock now is largely interest rate-driven, however, once the investors get comfortable with where interest rates are and the impact on the housing market, [Compass] still has to resolve this issue with the SoftBank overhang at some point in time.” Helfstein said, referring to the firm’s biggest investor.