What Redfin and Zillow earnings say about the state of the housing market

Zillow CEO Rich Barton (left) and Redfin CEO Glenn Kelman. (GeekWire File Photos)

Last week’s earnings announcements from Redfin and Zillow Group suggest a prolonged slowdown in housing market activity.

Revenue from Redfin’s real estate services division dropped nearly 30% in the first quarter, while Zillow’s overall revenue fell 13%, as the slowing housing market continues to impact their businesses following a pandemic boom in home price growth.

Zillow estimates the total industry transaction dollar volume will decline between 18% and 28% year-over-year in the current quarter, following a 27% drop in Q1.

Both companies are predicting another decline in revenue from key business segments.

  • Redfin forecasts second quarter revenue from its real estate services between $175 million and $183 million, compared to $252 million in the same period last year.
  • Zillow forecasts revenue from Premier Agent, its advertising service for real estate agents, to decline between 9% and 13% year-over-year.

U.S. home prices and sales continue to trend downward amid higher mortgage rates and a lack of supply. Pending home sales were down 17% in the four-week period ended April 30; median sale prices were down 2.7%; and new listings were down 22.9%, according to a recent Redfin report.

Redfin reported that the total months of supply — which measures the number of months it would take to deplete the current inventory at the current sales pace — is at 2.7 months. That’s up from 1.9 months a year earlier, but the number is significantly lower than the 4-to-5 month range that typically indicates a balanced market.

The total number of homes for sale is up about 7% as of March, but it is still well below the number needed to meet demand. (Redfin chart)

Data from the National Association of Realtors shows a seasonally adjusted annual rate of 4.44 million homes sales this year, down from roughly 5 million in 2022.

Zillow CEO Rich Barton pointed to a looming backlog of housing construction as a force that could ease housing affordability.

“Though we see record new inventory on the way, it will take some time for supply and demand to balance out,” he wrote in a letter to shareholders.

There is some optimism headed into the back half of the year as the Federal Reserve might move to pause rate hikes.

In some U.S. metros, home prices are falling in line with mortgage rates. An estimated one-quarter homes in Austin, Texas, have lower monthly payments than a year ago, a recent analysis by Redfin found.

Redfin also found that homes for sale cost less in 23.6% of Seattle’s market, San Francisco (18.8%), New York (18.3%), and Pittsburgh (15.6%).

If mortgage rates ease by late in the year without causing a recession, “we may see a break in the stalemate between buyers and sellers,” Redfin CEO Glenn Kelman said during the company’s second quarter earnings call. For now, though, many homeowners who have low rates aren’t able to find a new home to buy.

“Low inventory begets low inventory,” Kelman said.

Both companies have trimmed expenses in response to broader real estate trends, including layoffs.

“We wouldn’t wish a housing downturn on anyone, but it has made Redfin leaner, hungrier and better,” Kelman said in the Redfin Q1 earnings release.

Sign up to receive the best Underground art & real estate news in your inbox everyday.

We don’t spam! Read our privacy policy for more info.

This post was originally published on this site