Real estate stocks have been feeling the heat of high interest rates for a few years already, but many of them are on the rebound, including stocks like Home Depot and Lowe’s, as well as many real estate investment trusts (REITs).
Many factors are influencing this trend. The main one is that the Federal Reserve cut its benchmark interest rate for the first time in four years, and there might be more cuts coming. The election of Donald Trump as president and the imminent arrival of his cabinet picks are others.
Are You Missing The Morning Scoop? Breakfast News delivers it all in a quick, Foolish, and free daily newsletter. Sign Up For Free »
But not all real estate stocks have been feeling the love. Opendoor Technologies (NASDAQ: OPEN) stock remains down 93% from its highs, although the iBuyer jumped last week after Trump named key members of his economic team.
Opendoor has more direct exposure to the real estate market than the other stocks on this list. It buys and sells residential real estate — a market segment where the impact of higher interest rates has had an incredibly strong impact. Homebuyers haven’t been selling, and with relatively little inventory on the market, Opendoor has had a tough time.
But Opendoor could still end up being a long-term superstar.
Opendoor’s business can start to improve once the housing market starts to loosen up. After that, though, it will still have to prove itself as a business.
There are indications that a housing rebound is on the rise. In October, sales of existing homes increased 3.4% over September, according to Freddie Mac, beating The Wall Street Journal‘s estimate of 2.9%. They also rose 2.9% year over year, the first year-over-year monthly sales increase since July 2021.
Those positive trends reflected that mortgage interest rates had started to fall, but since then, they’ve begun creeping up again. There are more houses on the market, but now buyers aren’t sure what to do. In other words, although it looks like there’s going to be improvement, and there has been, it’s not clear that the trend is going to continue.
However, neither the uncertainty nor the stagnancy of the market will go on indefinitely. Many would-be homebuyers and sellers are waiting, but they’re not going to wait forever. The Federal Reserve is still planning to cut interest rates further, and when it does, that could finally unleash a more vigorous housing market.
On the surface, Opendoor looks like it has incredible growth opportunities. However, it hasn’t had much of a chance to exploit them while the operating environment in residential real estate is so difficult.
