The latest financial reports from Zillow Group and Redfin demonstrate ongoing wariness within the U.S. real estate market.
Both companies expect revenue from key business segments to decline year-over-year in the first quarter.
Zillow forecasts revenue from its advertising service for real estate agents to be between $313-to-$338 million for the period, down from $363 million in Q1 of 2022.
Redfin estimates revenue of $122 million-to-$130 million in real estate services segment, down from $167 million in the year-ago period.
The housing market continues to retrench due in part to rising interest rates brought on by persistent inflation. Prices have mostly stagnated, as people with fixed mortgage rates are choosing not to move and inventory remains low.
“Regardless of what happens to rates in 2023 and beyond, inventory will likely stay low,” said Redfin CEO Glenn Kelman. “What’s most remarkable about this housing downturn is that the number of homes for sale hasn’t meaningfully increased from the calamitous lows of the pandemic.”
Update: U.S. home sales fell for the 12th straight month, according to new data from the National Association of Realtors released Tuesday. In its own report, Zillow said there were 825,000 homes on the market in January, the second-lowest total on record. The housing inventory is down nearly 50% from any point in January 2020.
According to Redfin, investors bought roughly half as many homes in the fourth quarter as they did during the same period in 2021, resulting in a record year-over-year decline. Overall home purchases declined more than 40% from a year earlier.
Redfin’s 2023 budgeting assumption assumes 4.3 million existing U.S. home sales, down from roughly 5 million in 2022.
“Because of low inventory, we continue to believe that sales volume will be more volatile than home prices,” Kelman said.
The companies did call out some signs of optimism. Kelman noted that tour scheduling, a “leading indicator” of market trends, is on the rise. Tour requests experienced a year-over-year decline of 40% in November, whereas in January and February, the decline was around the 20% range.
In a letter to shareholders, Zillow CEO Rich Barton said he’s optimistic about the outlook heading into 2023, citing mortgage rates lowering from their June peak and a “looming backlog of homes under construction,” which will help affordability.
“However, we aren’t out of the woods yet when it comes to the macro economy and how it may affect the real estate industry,” he wrote. “Things continue to be foggy, and we can’t control what the housing market does. What we can control is how we operate our business.”
Both companies have trimmed expenses in response to broader real estate trends, including ending their iBuying businesses and laying off workers.
Kelman said Redfin has shifted to more digital-margin revenue, increased online traffic, and improved its sales force. He said these adjustments will help the company be “very profitable when the housing market recovers.”
Here are other highlights from the Q4 earnings reports.
- Revenue: Redfin’s full-year revenue was $2.3 billion, up 19% from the year prior. Zillow’s full-year revenue was $2 billion, down 6.2% from the year prior.
- Zillow’s hiring data: The company is receiving four times as many applicants per job posting compared to 2019, thanks to its flexible work model, Barton said. The company last year boosted stock-based compensation.
- Geographic trends: Kelman said Seattle’s real estate market is outperforming other states, possibly due to the lack of state income tax. He added that states like California and Oregon are experiencing an outflow of people. Redfin aims to hire more agents in states such as Texas, Georgia and Florida to capitalize on these migration trends.
