Redfin shares dropped more than 10% in after-hours trading Thursday after the company reported a 21% drop in revenue as it continues to face headwinds from a slumping housing market.
The Seattle real estate giant reported total revenue of $275.6 million, down from $349 million in the same period last year and narrowly missing Wall Street expectations. The company’s real estate services division, its primary source of revenue, dropped more than 28% to $180.6 million.
The revenue decrease comes as real estate transaction volume plummeted to the lowest level in at least a decade, with just 1% of the nation’s homes changing hands in the first half of the year. Redfin data shows that from July 3 to July 30, there were just 84,000 new listings on Redfin, down more than 21% from the year-ago period. The lagging listing activity pushed at least one analyst to downgrade the stock.
“Sales volume is near rock bottom,” Redfin CEO Glenn Kelman said on a call with analysts Thursday.
Declining transaction volume has taken a toll on Redfin, resulting in three rounds of layoffs in the past year that reduced its sales staff by a third. The company also made the decision last year to wind down its home-flipping business RedfinNow. The “iBuying” service offered homeowners near-market value offers for their homes, which helped to attract new customers.
Due to the cost-cutting moves, the company’s U.S. existing home sales market share declined to 0.75% from 0.83% in the second quarter of 2022, according to Kelman.
Few available U.S. properties for sale have nudged home prices slightly higher, but many homeowners are choosing to resist selling their homes to hold onto their low mortgage rates. Pending home sales were down 15% in the four-week period ended July 23, while median sale prices were up 2.6%, according to a recent Redfin report.
Thirty-year fixed mortgage rates were hovering around 6.9% Thursday, up from around 4.99% during the same point last year. Higher rates caused mortgage demand to drop to its lowest level in almost two months for the week ended July 28, according to data from Mortgage Bankers Association. Demand is down 26% compared to the same week last year.
Redfin’s mortgage revenue was $38.4 million, down 28% year-over-year. Its attach rate — the number of people who got a home loan after purchasing a property via Redfin — was 19%, down from the 20% last quarter.
Redfin’s net loss from operations was $27 million, an improvement from the previous year’s $75 million, surpassing its low-end estimates.
The company expects to break-even on an adjusted-EBITDA (earnings before interest, taxes, depreciation, and amortization) basis over the next 12 months, rather than reach that goal by year-end, which Kelman called “a setback.” However, the company forecasts improving its adjusted EBITDA this year by more than $140 million.
Kelman did call out some signs of hope. He cited the Federal Reserve’s optimism in avoiding a recession in 2024 as a potential boon for the company.
“Most economists once viewed a recession as unavoidable, and now see it as unlikely,” Kelman said. “When rates come down, the housing market will be poised to grow again.”
Kelman said the company maintains its budgeting assumption of 4.3 million existing U.S. home sales in 2023, which is down from roughly 5 million in 2022.
Here are other highlights from Redfin’s Q2 earnings:
- In the second quarter, Redfin sold the remaining homes in its properties division, officially clearing its balance sheet of any homes acquired during the company’s home-flipping era.
- Redfin’s mobile apps and website had more than 52 million average monthly users, slightly down from 53 million in Q2 2022. Similarly, Zillow Group reported a 3% decrease in average monthly unique visitors and a decline of 8% in visits compared to the previous year.
- Rentals generated revenue of $45.3 million, up from $38 million last year.
- Zillow and Redfin announced Tuesday a partnership to share new construction listings, a rare syndication of real estate information between the two rival companies.
