Why Redfin Stock Trounced the Market on Thursday

What happened

The housing market is quickly bouncing back, it seems, and that potential had investors excited about Redfin (RDFN 7.51%) stock on Thursday. Shares of the online real estate broker surged 7.5% higher, obliterating the 1.1% gain of the frothy S&P 500 index on the day.

So what

That bounce back is the conclusion of a piece of internal Redfin research. On Thursday, in its latest housing market update, the real estate company said that pending home sales fell 26% on a year-over-year basis in the four weeks ending on Jan. 22. While that doesn’t sound like an encouraging figure at all, it actually represented the lowest decline in over three months. 

Not surprisingly, much of this could be attributed to a decline in mortgage rates. According to Redfin’s calculations, these fell to 6.1% from a recent high of 7%.

Redfin wrote in its analysis that the median price for a home in this country rose 11% year over year in the latest covered period, to hit $350,000. The markets where home prices continue to fall has shrunk; this occurred in 17 of the 50 most populous ones during the covered period, down from 20 at the start of January.

Now what

In conclusion, Redfin quoted its economics research lead Chen Zhao as saying: “Homebuyers are starting to feel more confident as mortgage rates tick down closer to 6% than 7% and the overall economy chugs along with surprising resilience, especially in the labor market. Steadily cooling inflation is likely to prevent mortgage rates from jumping back up.”

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short February 2023 $7 calls on Redfin. The Motley Fool has a disclosure policy.