The euphoria at the beginning of this year is fast turning into despair. The real estate sector is seeing factors at play that are fast impacting its participants.
Two major real estate brokers, Compass (COMP) and Redfin (RDFN), have just announced a combined 920 job cuts, representing 10% and 6%, respectively, of their headcount. The development comes fresh on the heels of 1,100 job cuts at Coinbase (COIN).
The housing market is cooling fast as higher interest rates and buoyant housing prices squeeze out would-be buyers. While sales have been falling over the past few months, prices have stayed elevated. The median price of existing homes has risen from about $350,000 in April 2021 to the present nearly $400,000 level. This indicates the market is still buoyant as compared to historical levels.
Hedge Funds Are Dumping Compass
Low inventory levels are a key reason for the current elevated prices. This means first-time buyers would find it even harder to buy the home of their dreams. Compass shares dropped 10.5% on Tuesday and have now lost nearly 79% of its value since listing in April 2021.
Concurrently, the TipRanks database shows hedge funds have decreased holdings in the stock by 1.1 million shares in the last quarter, implying a negative hedge fund confidence signal in the stock.
Investor Sentiment Negative for Redfin
Redfin shares are down 79.1% so far in 2022 and are hovering near 52-week lows. Additionally, a short interest of about 16% means investors may have to endure further pain.
The company expects to incur nearly $20 million in severance and related costs, and noted, “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects. Mortgage rates increased faster than at any point in history. We could be facing years, not months, of fewer home sales.”
The Tipranks Stock Investor tool indicates investor sentiment remains negative on the stock, with the number of portfolios holding Redfin down by 1.1% over the last 30 days.
The average rate for a 30-year fixed-rate mortgage has jumped to 5.2% from 3.2% in a span of six months. Higher borrowing costs are pushing prospective buyers out of the market, but with more rate hikes on the horizon the, the market may lose even further steam.
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