Top real estate companies are rallying today. Zillow Group stock jumped 11%, while Better Home & Finance and Opendoor surged 33% and 17%, respectively. Other major names, including UWM Holdings and PennyMac Holdings, also traded in the green.
Zillow Group, Better Home, and Opendoor jumped as bond yields fell
While these stocks jumped, they remain well below their highs for the year. Zillow has dropped by 62%, while Better Home & Finance and Opendoor have slumped by 85% and 72% in the last 12 months.
The rebound coincided with the retreat in bond yields. Data show that the ten-year yield dropped to 5.06%, while the five-year fell to 4.86%. The two have dropped substantially from their highest points this month.
US bond yields dropped even after the US published strong consumer inflation data. The report showed that the headline Consumer Price Index (CPI) jumped to 3.7% last month. Core inflation rose 2.6% in September. Another report released today showed that the producer price index (PPI) rose from 0.5% in August to 1.3% in September, higher than the expected 0.6%.
Despite these numbers, market participants don’t expect the bank to hike interest rates this month. Odds of the bank leaving interest rates unchanged moved to 72%. Most analysts expect the bank to hike interest rates by 0.25% in the December meeting.
The falling bond yields have led to a brief retreat in mortgage rates. The average mortgage rate dropped slightly to 7.3%. Despite this, these rates have remained at the highest level in nearly three years.
Lower mortgage rates would boost companies like Zillow Group, Opendoor, and Better Home & Finance. Indeed, the rising mortgage rates explain why these stocks have plunged by double digits this year.
Mortgage rates have impacted these companies
The soaring mortgage rates explain why these stocks have been under pressure this year. Zillow, the biggest portal, has suffered substantially this year as demand for homes has done. SimilarWeb data shows that its website traffic dropped by 11% in September to 317 million.
Its recent results showed that its revenue rose by 18% to $772 million, while its net loss jumped to $4 million. Analysts expect the upcoming results to show that its revenue rose 11% to $754 million, a sign that its business is slowing.
Opendoor’s business has been one of the most pressured companies because of the rising mortgage rates. In a recent statement, the company’s CEO clarified that the company was not near its breakeven point. She said:
“The worsening housing market at the end of August pushed us roughly six to eight weeks behind on our Adjusted EBITDA guidepost, meaning the twelve-month window in which we expect to be adjusted EBITDA profitable now starts this quarter rather than last quarter.”
Better Home & Finance has also come under pressure as higher interest rates have led to a dip in originations. While its second quarter had strong growth, the estimate is that its revenue will grow by 12% to $50 million. Looking forward, these stocks will remain under pressure once the ongoing dip-buying ends.