Real estate companies including Compass, Offerpad and Opendoor saw share prices hit all-time lows Monday. The rout suggests investors may have deep concerns about the real estate industry.

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Amid a brutal day for real estate that saw many companies’ share prices plummet to new all-time lows, an analyst downgraded Redfin’s stock and said the online brokerage’s model is “fundamentally flawed.”

Jason Helfstein, head of internet research at Oppenheimer & Co., wrote Monday that Redfin’s strategy is flawed because “the company continues to use a fixed-cost model for agents.” That in turn “prevents the company from optimizing margins when the housing markets decline and limits share gains when markets rebound,” Helfstein argued. He also downgraded the company’s stock to underperform from a hold-equivalent rating.

Redfin’s share price dropped Monday to as low as $3.32 — a record for the company — before recovering slightly to above $3.60 as of mid afternoon. That was down about 10 percent for the day, and follows months of plummeting prices. When Inman last covered the company’s stock a month ago, for instance, shares were trading at a little below $5. And that price was in turn way down from the company’s all-time high in February 2021, when shares were approaching $100.

But Monday wasn’t just brutal for Redfin. In fact, numerous other real estate companies also hit all-time low prices. Opendoor, fresh off an earnings report showing it lost nearly $1 billion last quarter, saw shares fall to $1.75 Monday. That price was down from around $2.30 shortly before the recent earnings report, and from the all-time high of more than $34 per share in February of 2021.

Fellow iBuyer Offerpad saw its share price fall to an all-time low of $.67 at one point Monday. That’ was down from about $.85 in the lead up to its earnings report last week. That report showed that the company ended its profitability streak and lost $80 million in the third quarter of this year.

 

This chart compares the stock market performance over the last three months of Anywhere (green), Compass (pink), Offerpad (orange), Opendoor (blue) and Redfin (dotted black). (Credit: barchart

Offerpad’s share price arguably puts it in the greatest peril; if a company’s shares trade for below $1 for a month, they can be delisted from the New York Stock Exchange. In Offerpad’s case, the company last saw shares trading above $1 in late October. A rally from $.70 to $1 or more would require reversing a months-long trend toward lower and lower prices.

Beyond the iBuyers, Compass also hit a new all-time low Monday, with shares falling from an opening price of $2.25 to barely more than $2 by the afternoon. They rose to around $2.10 by late afternoon, but were unable to get out of the red.

Significantly, all of these companies were down Monday despite the fact that the overall markets were up — suggesting investors have deeper misgivings about real estate as an industry than they do about the market generally. The only major residential real estate companies that appeared to have risen with the market Monday were Zillow and Anywhere — the latter of which spent most of Monday down but managed to pull off an afternoon rally to get out of the red.

Rising mortgage rates and cooling demand for housing have bedeviled publicly traded real estate companies for months, cutting into both demand for housing-related services as well as investor confidence.

However, this month’s earnings season may mark the coalescence of more specific fears about the sector. Opendoor’s massive losses, for instance, have raised new questions about how an iBuyer can survive in a market with flat or negative home price appreciation. And on Monday, analyst Mike DelPrete described Opendoor as sitting in a spot similar to the one Zillow occupied a year ago. In Zillow’s case, though, the company cut its losses and gave up on iBuying altogether. Opendoor is currently pivoting, for instance by debuting an asset-light marketplace, but it also can’t simply give up on iBuying the way Zillow did.

Helfstein’s analysis of Redfin raises similarly fundamental questions about the company. Redfin is unique among large companies because it pays agents a salary rather than classify them as independent contractors. The pitch is that this model is part of an ecosystem that makes Redfin easier, faster and more responsive for consumers. A would-be homebuyer can click a single button to set up a hassle-free, low pressure home showing for example.

But the model becomes tougher to execute in lean times. In a traditional brokerage, agents generally work on commission, meaning that the brokerage doesn’t have to pay them even when they’re not closing deals. That model can be challenging for agents, especially newer ones, who have to deal with inconsistent paychecks. But it also means brokerages don’t have high costs that remain fixed even as revenue drops.

Redfin, on the other hand, has to keep sending checks to everyone on its payroll even if they aren’t closing deals.

For its part, Redfin told Inman Monday that it could not comment on the situation, instead pointing to its upcoming earnings report and investor call, both of which will go live Wednesday. In the meantime, though, Redfin and a cohort of other real estate companies will have to keep contending with investors’ trepidation.

Email Jim Dalrymple II

iBuyers | Redfin | technology
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