According to data compiled by S&P Global Market Intelligence, Redfin (NASDAQ: RDFN) stock was down by nearly 12% week to date in the hours before market open Friday. Investors were concerned about the latest speculation regarding the Federal Reserve’s moves — or lack thereof — on interest rates. These are crucial to the real estate business, as homebuying is heavily dependent on debt financing.
Across the week, investors were still reacting to a higher-than-expected inflation readout for March. The government’s Bureau of Labor Statistics reported that the U.S. Consumer Price Index (CPI) rose by 3.5% year over year, which was a fatter gain than many economy watchers had predicted.
Inflation has been, and will likely continue to be, the No. 1 threat to our economy in the eyes of Fed officials and many economists. In order to keep battling it, the former is probably going to hold the central bank’s key interest rates steady instead of cutting them as previously — and recently –planned.
“If higher inflation does persist, we can maintain the current level (of interest rates) for as long as needed,” said Fed Chair Jerome Powell this past Tuesday.
This is not a happy development for the broad real estate sector, which includes brokers like Redfin. Slimmer rates mean cheaper mortgages, and all things being equal cheaper mortgages mean higher demand for housing.
Yet on a historical basis, current interest rates are actually modest — they only seem disproportionately elevated because they had been wafer-thin for years before this latest inflation reared its ugly head.
On top of that, demand remains strong despite the current rate regime. On Thursday, Redfin’s latest piece of research indicated that the median U.S. home price increased on a year-over-year basis for the four weeks ending April 14. It is now $380,250, which, the company pointed out, is barely $3,000 away from the all-time-high figure set in June 2022.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short May 2024 $8 calls on Redfin. The Motley Fool has a disclosure policy.
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