Addressing the much discussed but controversial topic of housing stocks to sell, it’s important to stick with the facts. While promoting a doom-and-gloom narrative for its own sake doesn’t offer much help, it’s also unproductive to disseminate toxic positivity. If something doesn’t look right, we’ve got to call attention to it.
Primarily, the key concern for all housing stocks is rising borrowing costs. According to data from Freddie Mac, the average 30-year fixed rate mortgage in the U.S. jumped from a low of 2.66% on Dec. 24, 2020 to a recent post-pandemic high of 7.79% on Oct. 26, 2023. As of the latest information, the average mortgage rate stands at 7.76%, which is incredibly elevated against historical norms.
Naturally, this circumstance crimps sentiment for would-be homebuyers because of mortgage qualification challenges. Additionally, other datapoints, such as the erosion of demand for electric vehicles indicate that consumers are backing off big-ticket items. So, while some markets (such as the coastal regions) tend to enjoy robust interest, at some point, the math fails.
It’s true that housing sales have been robust. But with rising layoffs at major corporations, the addressable market may decline. Therefore, it’s time to consider housing stocks to sell.
At first glance, Re/Max (NYSE:RMAX) – which is short for Real Estate Maximums – is an international real estate firm that operates through a franchise system. Operating in over 100 countries, the brand is synonymous with housing stocks. However, it’s synonymous for the wrong reason arguably, with shares down 48% since the beginning of the year.
Just from that loss, investors should be cautious about engaging RMAX, particularly because the negative acceleration hasn’t really faded. In the trailing month, for example, it lost 15% of value. While the company posted earnings per share of 40 cents in the third quarter – thus beating the consensus target of 36 cents – it disappointed in terms of revenue. Seeing the year-over-year sales loss, investors bolted.
Just as problematic, analysts peg RMAX a consensus hold. What’s more, no Wall Street expert is willing to stick their necks out for a buy rating. Instead, we’re looking at four holds and one sell. Yes, the average price target is $14.25, but that seems an unrealistic target given the extreme volatility.
On the other side of the table, Redfin (NASDAQ:RDFN) – which provides residential real estate brokerage and mortgage origination services – appears to be having a splendid year. Indeed, had 2023 ended on July 13, investors would be making a killing. Even now, RDFN enjoys a year-to-date performance of almost 38% up. However, in the trailing six months, it tanked nearly 41%.
Such severe sentiment shifts warrant at least a discussion about housing stocks to sell. Still, it’s a tricky narrative. According to GeekWire, Redfin met expectations for its Q3 earnings report, posting $269 million in revenue. It also pared net losses to $19 million, comparing favorably to a net loss of $90.2 million in the year-ago quarter. Subsequently, in the past five sessions, RDFN gained over 25%.
However, in my opinion, I would pay more attention to the derivatives market. Specifically, Fintel’s screener for options flow – which targets big block trades likely made by institutions – shows significant prior to the Q3 earnings report. As well, following the disclosure, a major trader sold $6 calls, implying upside resistance at the strike price.
Rocket Companies (RKT)
Billed as a financial technology (fintech) firm specializing in mortgage, real estate and financial service businesses, Rocket Companies (NYSE:RKT) may be one of the housing stocks to sell. Mainly, that’s because of the rising interest rate environment. Borrowing costs aren’t just marching higher – they’re accelerating to a point that’s reducing the total addressable market.
Now, on paper, Rocket seemed to perform well. During its Q3 disclosure, the company posted earnings revenue that exceeded Wall Street’s estimates. Notably, expenses declined during the quarter, helping matters greatly. Unfortunately, management revealed a Q4 adjusted revenue range landing between $650 million to $800 million. That was well short of the $951.3 million consensus.
Again, it comes down to the math. Higher borrowing costs, all other things being equal, will yield higher profitability per lending product. But with fewer qualified borrowers available, Rocket had no choice but to adjust down its expectations. So, unless you have other data supporting the completely opposite narrative, RKT is one of the housing stocks to sell.
SoFi Technologies (SOFI)
Mentioning SoFi Technologies (NASDAQ:SOFI) in any non-positive context represents a high risk. However, if the real estate print is as ugly as the data suggests it to be, SOFI is probably one of the housing stocks to sell. If it’s a matter of great concern, I’m more than happy to extend the conversation via X. But the point is, if housing stumbles, that’d be a huge vulnerability for SOFI.
Yes, you can point to the fact that as of Tuesday’s close, shares gained almost 65% of equity value. It’s a tremendous performance for the fintech. Nevertheless, SOFI stumbled since July 31. Also, it struggled for traction following the initial public offering of Instacart (NASDAQ:CART), an IPO SoFi helped underwrite. And that participation may have come at great cost.
Moving forward, in addition to vulnerabilities tied to personal (unsecured) loans, SoFi also faces uncertainties tied to mortgages. Not only is the addressable market diminishing, the rise of mass layoffs could hurt current mortgage holders. I’d be extremely careful with SOFI.
Opendoor Technologies (OPEN)
Once one of the most popular enterprises benefitting from the post-pandemic housing boom, Opendoor Technologies (NASDAQ:OPEN) has sadly struggled since early 2021. According to data from Google Finance, OPEN hit a peak average weekly share price of $34.59. Right now, it trades hands at a little over two bucks. Even with the severe loss, it’s probably a candidate for housing stocks to sell.
Sure, let’s give respect where it’s due. Since the start of this year, OPEN returned over 88% of equity value. Unfortunately, OPEN has been in free fall since the Aug. 1 session. Specializing in the iBuyer business model of leveraging technology to essentially flip homes for profit, the concept made sense in the prior bullish, low-interest rate environment.
In a high-interest rate environment where people are losing not burger-flipping jobs but jobs at the biggest financial firms in the world, the iBuyer model doesn’t work so well. That’s evident from Opendoor’s Q3 revenue, which suffered a 71% year-over-year implosion.
Analysts rate shares a hold with a price target implying only 8% upside.
One of the trickiest ideas to decipher among housing stocks to sell, homebuilder Lennar (NYSE:LEN) might seem like a no-brainer candidate to jettison. After all, the data points to continued pain for the housing market and big-ticket items overall. However, sector rival DR Horton (NYSE:DHI) recently delivered an outstanding earnings print for its fiscal Q4 report. Most notably, it forecasts a better-than-expected year to come, per a Barron’s report.
Conspicuously, DHI gained nearly 16% of equity value in the trailing five sessions. Subsequently, the enthusiasm also bolstered the homebuilding segment. For its part, shares of Lennar returned nearly 13% during the same period. However, in my opinion, investors should be cautious thanks to a lack of confirming action from the smart money.
Looking at Fintel’s options flow data for LEN derivatives, activity during the day that DR Horton released its fiscal Q4 print was only modestly bullish. Throughout October, the predominant activity among major traders was the acquisition of puts between the strike prices of $90 to $100. That implies a significant expected loss from LEN’s $120.41 price tag, thus warranting caution.
Toll Brothers (TOL)
Another homebuilding enterprise that benefited from the boost in DR Horton, Toll Brothers (NYSE:TOL) shot up nearly 14% in the trailing five sessions. Since the beginning of the year, TOL moved up almost 59%. For the most part, analysts are bullish, pegging shares a moderate buy. However, the average price target is $92.75, which only implies about 16% upside.
Fundamentally, that seems modest based on DR Horton’s Q4 earnings performance and fiscal year 2024 upgraded projections. It’s almost as if Wall Street is a bit hesitant on buying into the current enthusiasm. Again, I believe the misalignment of outside data points – spiked borrowing costs, reduced consumer demand, rising layoffs – and open market sentiment warrants caution.
Not only that, Fintel’s options flow screener suggests that TOL may be one of the housing stocks to sell. Specifically, the maximum strike price among all options transactions placed by institutional traders has been steadily declining since the Sept. 15, 2023 expiration date. In other words, even the most bullish options traders are self-mitigating their upside targets to more realistic levels.
Frankly, that’s not a very confident profile.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.