If you’ve bought or sold a home in the past several years, you’re probably at least somewhat familiar with Redfin. This enormous online brokerage company covers a stunning 98% of the entire U.S. housing market. Redfin’s stock soared during the pandemic homebuying frenzy, peaking at more than $96 per share in February 2021. Since then, though, things have collapsed. Redfin stock is now down by about 93%. But what does this mean for the housing industry as a whole?
Too Big to Fail?
It’s no secret that we’ve been in a housing crisis for quite some time. In June 2022, the Consumer Price Index (CPI) hit an inflation rate of a shocking 9.1%. For comparison, the Federal Reserve’s target goal is just 2%. In response, interest rates skyrocketed from a historic low of 0.25% to an uncomfortably high 5.5%. Naturally, this put the brakes on home sales, as many buyers were now priced out of the market.
Redfin was able to weather the storm by closing its iBuying division, which bought homes directly from sellers and flipped them at a profit. Instead, the company focused solely on its services segment, including brokerage, mortgage lending, and a rental marketplace. That decision has kept Redfin going and put it in a strong position to bounce back when interest rates cool.
But what of the housing market as a whole? Is it about to collapse? What happens next largely depends on the June CPI report.
Why the CPI Report Matters
The May CPI report showed that inflation has dramatically cooled. This led forecasters to predict two interest rate cuts before the end of the year. If June also shows low inflation, it will bolster this prediction. Assuming that interest rate cuts do happen, home sales should start to take off once again, since more people will be able to afford to buy. Inventory should also improve, since many would-be sellers are currently hanging onto their existing low-rate mortgages. Rather than a crash, most experts are predicting a “correction,” in which prices drop from their pandemic highs but homes don’t suddenly lose hundreds of thousands in value.
Neither Lisa Fritscher nor Stocks.News has positions in this company.
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