Although the housing market soared through the first two years of the post-pandemic new normal, the challenge now is that the paradigm shifted, necessitating a discussion about real estate stocks to sell. Understandably, the topic of dumping publicly traded companies rarely sparks the warm and fuzzies. However, please note that this narrative centers on self-preservation.
Fundamentally, the concept of real estate stocks to sell deserves special consideration because of harsh monetary realities. Back when the coronavirus first capsized society, the Federal Reserve responded through liquidity injections. Naturally, this move spiked up the real M2 money stock. But now, the central bank is committed to tackling the subsequent inflation through higher interest rates.
Now, inflation didn’t become truly awful until 2022. That was when the velocity of money stock jumped dramatically higher. Because people started to spend the money saved through stimulus checks and not commuting to work, more dollars chased after fewer goods. Thus, the Fed may get even more aggressive with interest rates this year.
That wouldn’t be good for housing. Therefore, investors should pay attention to the below real estate stocks to sell.
Real Estate Stocks to Sell: Redfin (RDFN)
A residential housing brokerage firm, Redfin (NASDAQ:RDFN) seemingly commanded the business news cycle in 2020 and 2021. Experts from the company came on to pontificate about inventory shortages and skyrocketing demand and whatnot. Well, those smiling faces aren’t so gleeful right now. In the trailing year, RDFN lost a staggering 84% of its equity value.
Let’s be fair. In recent sessions, Redfin has been killing, gaining over 24% in the trailing five days. The question is, will that be enough to reverse the ugliness in RDFN? In the new normal, I’m not about to say it’s impossible. However, I still feel reasonably confident about slotting Redfin on this list of real estate stocks to sell.
On a trailing 12-month basis, Redfin’s operating and net margins slipped into negative territory. Its Altman Z-Score of 0.84 reflects a distressed business that risks bankruptcy in the next two years. And against book value, RDFN finds itself way overvalued. Unless you have compelling reasons to believe otherwise, it’s one of the real estate stocks to sell.
Real Estate Stocks to Sell: Zillow (Z, ZG)
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Usually, whenever the topic of companies to avoid comes up, I tend to feel sympathy for the enterprises involved. After all, you’re not just dealing with an inanimate brand. You’re talking about real people who depend on said brand to put food on the table. Nevertheless, it’s difficult to feel bad about Zillow (NASDAQ:Z, NASDAQ:ZG).
Notoriously, Zillow attempted to disrupt the iBuyer business model of artificial intelligence-driven acquisition for home-flipping purposes. However, the initiative eventually failed – quite spectacularly, I might add. It turns out, even the biggest enterprises get caught off guard by the capricious whims of capitalism.
To be fair, among real estate stocks to sell, Zillow’s market performance isn’t that bad. In the trailing year, Z shares dropped “only” 30%. However, in the trailing month, shares shot up over 15%. Day trading speculators will take it.
However, Zillow also suffers from similar negative profitability issues as Redfin. And while covering analysts are somewhat optimistic, the hedge funds rate Zillow unfavorably.
Real Estate Stocks to Sell: Douglas Elliman (DOUG)
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A real estate firm covering multiple areas of the industry, when it comes to residential housing, Douglas Elliman (NYSE:DOUG) tends to focus on premium-label listings. During the heady days of the new normal, Douglas Elliman probably would have killed it in the markets had it launched its initial public offering back then. But in reality, DOUG made its public debut in December 2021.
Let’s just say circumstances didn’t favor the freshly public enterprise. In the trailing year, DOUG dropped over 59% in equity value. Unlike other real estate stocks to sell, Douglas Elliman shares didn’t really enjoy a near-term swing higher. For instance, in the trailing month, shares only gained a quarter of a percentage point.
Fundamentally, the problem is that luxury home sales did not receive an exemption from the pain. Sales on the high end of the housing market dropped 38.1% year-over-year during the quarter that ended Nov. 30, 2022.
To be sure, Douglas Elliman stands on more stable ground financially than other housing-related enterprises. Still, the aforementioned fundamental headwind should worry prospective investors.
When it comes to real estate stocks to sell, Opendoor (NASDAQ:OPEN) may truly be the one enterprise that may no longer be with us shortly. It’s not so much that the iBuyer business model stinks. No, it’s that the iBuyer business model stinks when people no longer can afford to buy homes. At that point, to whom would you flip your newly acquired house?
If you want to understand the depth of Opendoor’s dilemma, you should consider reading Wired.com’s many takes. For instance, in October of last year, the publication warned that OPEN represented a canary in the economic coal mine. The bottom line, the iBuyer business model doesn’t work in a rising interest rate environment.
I suppose the biggest clue that OPEN represents one of the real estate stocks to sell focuses on the chart. In the trailing year, shares hemorrhaged almost 90% of equity value. Financially, the company’s distressed balance sheet and negative profit margins seal the deal. You should probably just walk away.
Source: Dennis Diatel/Shutterstock
To be 100% clear, Matterport (NASDAQ:MTTR) only partially relates to the real estate market. However, the company – which specializes in 3D spatial imaging services and products – depends heavily on said industry. Indeed, MTTR suffered like its direct-play counterparts, shedding nearly 83% of equity value in the trailing year.
In some ways, Matterport is like a semiconductor manufacturer that lost a key partnership with a consumer electronics firm. While MTTR again is not a real estate investment in the truest sense of the phrase, it needs a viable market to keep moving. As well, the fading of the Covid-19 crisis reduced relevancies for platforms that promote contactless services.
Financially, the problem with Matterport centers on viability. According to Gurufocus.com’s assessment, the company’s profitability profile ranks as one out of ten. Mainly, this is because its operating and net margins sunk to ridiculous lows. If it weren’t for Matterport’s strong cash balance, it may have gone bye-bye. Still, it’s probably safer to consider MTTR as one of the real estate stocks to sell.
Rocket Companies (RKT)
Although brokerages represent some of the most problematic cogs within real estate stocks to sell, investors should also watch out for mortgage providers like Rocket Companies (NYSE:RKT). With interest rates skyrocketing from the lows of the pandemic era, RKT faces significant pressure. Sure, mortgage providers may theoretically earn more for their loan packages. However, volume declined precipitously.
Really, the performance on the chart tells you everything you need to know. In the trailing year, RKT plunged nearly 45%. Yes, in the past five sessions, RKT gained about 8% of market value. However, in the trailing half-year period, we’re still looking at a loss of 9%. Therefore, the net return remains negative.
It’s difficult to see Rocket turning things around until the fundamentals change favorably and dramatically. Currently, its three-year revenue growth on a per-share basis sits 46% below parity. Its net margins are very low compared to the underlying financial services sector. And the balance sheet features the core vulnerability. of a low cash-to-debt ratio.
Another financial services firm, LendingTree (NASDAQ:TREE) faces significant concerns this year. At the moment, it doesn’t look like it. For instance, on the Jan. 10 session, TREE stock gained nearly 11% of equity value. In the trailing month, shares shot up almost 25%. However, I look at the longer-term picture. Shedding more than 80% in the trailing year, TREE probably ranks among the real estate stocks to sell.
Interestingly, the few analysts that cover LendingTree love the company’s prospects. Currently, TREE features a consensus strong buy view, according to TipRanks. As well, Wall Street experts peg the average price target at $42.33. This represents almost a 56% upside from the time of writing.
Nevertheless, hedge funds significantly reduced their exposure to TREE stock since early 2021, which should tell you something. Also, LendingTree suffers from a weak balance sheet. In particular, its Altman Z-Score of 0.69 reflects a distressed business. Finally, the company also suffers from negative TTM profit margins, which isn’t helpful during a period of rising rates.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.