The housing market hit a sudden and “significant” slowdown in the past few weeks that could continue in coming months, Redfin Corp.’s chief executive said Thursday afternoon.
The real-estate brokerage and website company announced second-quarter earnings Thursday afternoon that beat expectations, but the company’s third-quarter forecast came in short of what Wall Street was projecting. On a conference call to discuss the results, Chief Executive Glenn Kelman reported that Redfin had pulled down its forecast after “an unexpected drop in Redfin’s bookings growth in the past three weeks, slowing traffic growth in a weakening real-estate market.”
Redfin RDFN, +2.07% stock, which fell in extended trading after the forecast was made public, saw that decline accelerate to a loss of almost 10% after Kelman spoke Thursday afternoon, but he did not hold back. He said a decline in U.S. home sales in June was expected to reappear in August and September after a slight relief in July, specifically calling out difficulties in markets on the West Coast that have driven home sales higher in the past few years.
“For the first time in years, we are getting reports from managers of some markets that home buyer demand is waning, especially in some of Redfin’s largest markets,” Kelman said, specifically calling out Seattle, Portland and San Jose as areas where inventory was still tight but did not seem to be pushing prices higher still.
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“June sales were down in these markets by double-digits and inventory was up also by double-digits,” he said of the West Coast cities. “The trend is continuing in July and reports are now coming in from Washington, D.C.; Boston; Virginia and parts of Chicago as well that homes there are getting harder to sell.”
Both existing-home sales and new-home sales declined in June, but price gains on the homes that did sell actually accelerated, according to CoreLogic’s Home Price Index for June, which was released earlier this week. Other trackers like the S&P/Case-Shiller national index show decelerating price increases, but were still reflecting double-digit price increases in the San Francisco and Seattle areas. Pending-home sales were also lower than the previous year in June, according to the National Association of Realtors, the sixth consecutive month that metric trailed the previous year.
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Redfin’s unique position as a website used by those who may not be actively looking to buy a home, and a brokerage that actually works with those who are buying and selling, gives it a unique perspective on the housing market. Kelman was clear that he was basing his fears on elements from both, as slowing traffic growth and worrisome rates of closing sales in three of the past four weeks caused the cautious guidance and warning.
“We aren’t entirely sure how much of it is the market and how much of it is us because our guidance is based on a slowdown that only occurred in the last few weeks. It was a significant slowdown,” Kelman said. “It may be that we have a good week this week and a good week next week and we can outperform it. But we are seeing a significant change.
“My guess is that only some of it is driven by the environment. It is definitely changing.”
Despite the concerns, Redfin announced that it is expanding its Redfin Now service that buys and sells houses, which Goldman Sachs analysts have called a “necessary” step for the company as startups using the so-called iBuyer approach proliferate. Goldman downgraded Redfin and rival Zillow Group Inc. ZG, -0.27% in June.
Zillow also had issues after its earnings report earlier this week, falling 16.3% Tuesday after also announcing a forecast that was weaker than expected. Zillow also has an “iBuyer” program called Instant Offers, and one analyst asked Kelman about what effects greater competition in buying and selling homes between the two online real-estate titans could have.
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“Well, first of all we haven’t competed directly with Zillow and its Instant Offers program in any market, we just don’t have overlapping markets. My expectation is that, it will be a price war,” he said. “We’ll probably put more pressure on sales volume than gross margin because rather than take more risk on a property and offer a price that we’re not sure we can beat when we flip the home, we would just have to step back and let someone else have that sale and take that risk.”
Redfin, which went public just more than a year ago, has seen shares decline 26.1% this year, as the S&P 500 index SPX, -0.14% has gained 6.9%. After its big fall earlier this week, Zillow has still gained 25.1% on the year, and has a market capitalization of $10.3 billion, about five times more than Redfin.
