Real estate stocks have been feeling the heat of high interest rates for a few years now, but many are on a recovery, including stocks like Home Depot And Lowe’sas well as many real estate investment trusts (REITs).
There are many factors that influence this trend. The biggest one is that the Federal Reserve has cut its benchmark interest rate for the first time in four years, and more cuts could be on the way. The election of Donald Trump as president and the impending arrival of his Cabinet picks are other examples.
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But not all real estate stocks have felt the love. Opendoor technologies(NASDAQ: OPEN) Shares remain 93% off their highs, although iBuyer jumped last week after Trump appointed 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 sold, and with relatively little inventory on the market, Opendoor has struggled.
But Opendoor could still become a long-term superstar.
Opendoor’s business could start to improve once the housing market starts to loosen up. But after that it will still have to prove itself as a company.
There are indications that there is a revival in the housing market. According to Freddie Mac, existing home sales rose 3.4% in October compared to September TheWall Street Journal‘s estimate of 2.9%. They also rose 2.9% year-over-year, the first monthly year-over-year sales increase since July 2021.
These positive trends reflected that mortgage rates began to decline, but have since begun to rise again. There are more homes on the market, but now buyers don’t know what to do. In other words, while it appears that there will be improvement, and there is, it is not clear whether the trend will continue.
However, neither uncertainty nor market stagnation will last indefinitely. Many potential home buyers and sellers wait, but they won’t wait forever. The Federal Reserve still plans to cut rates further, and if that happens, it could finally unleash a stronger housing market.
At first glance, Opendoor appears to have incredible growth opportunities. However, it hasn’t had much of a chance to exploit these when the operating environment in residential real estate is so difficult.
The company offers homeowners an alternative way to sell their homes using digital technology and artificial intelligence. It aims to make selling and buying seamless, provide accurate quotes based on its machine learning algorithms and make quick cash offers to sellers. Real estate is being disrupted by the digital transition and Opendoor is a major player.
Residential is one of the biggest markets out there, with a $1.9 trillion opportunity. Opendoor is now one of the few remaining iBuyers Zillow And Redfin have closed their rival companies. As one of the last remaining players, it has an even greater chance of success.
Revenue rose 41% year over year in the third quarter, gross profit increased from $96 million to $105 million, and net loss improved from $106 million to $78 million. It bought 3,504 homes in the quarter and its inventory balance was $2.1 billion, up 64% from last year. Investors are cautiously optimistic: Opendoor shares are up 16% in the past month.
Opendoor is well positioned to recover when the market improves, but there is a lot of uncertainty at the moment. It seems that it is financially stable and has enough money to get through this difficult period. But if the market doldrums last too long, Opendoor’s situation could become precarious. The positive third-quarter report should allay some investor fears, but the market is still incredibly cautious.
I want to be crystal clear that this stock is a risky play, and not for the conservative investor. I only recommend it for investors who have a serious risk appetite. If that suits your investment profile, you might want to take a bite at the current price. It is so low that you don’t have to risk much for a huge payout.
Consider the following before purchasing shares in Opendoor Technologies:
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in Home Depot and Zillow Group. The Motley Fool recommends Lowe’s Companies, Opendoor Technologies, and Redfin and recommends the following options: Short February 2025 $10 calls on Redfin. The Motley Fool has a disclosure policy.
1 Growth Stock Down 93% to Buy Right Now was originally published by The Motley Fool
