The slumping housing market hasn’t been kind to Redfin’s business. But the Seattle real estate giant sees some silver linings.
“We wouldn’t wish a housing downturn on anyone, but it has made Redfin leaner, hungrier and better,” Redfin CEO Glenn Kelman said in the company’s first quarter earnings release.
Redfin’s revenue fell 45% in the first quarter to $325.7 million. The company’s real estate services division, its primary source of revenue, dropped nearly 30% to $127 million.
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 23; median sale prices were down 2.8%; and new listings were down 22.4%, according to a recent Redfin report.
Redfin has responded to the market headwinds by trimming costs, including three rounds of layoffs in the past year.
As mortgage rates began ticking up last year, Redfin’s stock price plummeted. This past winter “we were mostly gnawing on bone worrying about our survival,” Kelman said on a call with analysts Thursday.
“But it’s common now for our managers to talk to their teams about being ready for a rebound, whenever it may come,” Kelman said. He added: “It’s good to be alive.”
Kelman said Redfin’s experience from past housing downturns is that the public “usually sours on housing altogether.” But this time around people still want to move, and demand for affordable turnkey homes remains constant, he said.
“There are so many people who want to move to a more affordable part of the country,” he said. “That is unfinished business in America.”
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,” Kelman said. 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.
Thirty-year fixed mortgage rates were hovering around 6.43% Thursday, up from around 5.1% during the year-ago period, and from around 3% two years ago. However, rates could trend downward as inflation slows.
Kelman said the company’s 2023 budgeting assumption predicts 4.3 million existing U.S. home sales in 2023, down from roughly 5 million in 2022.
The CEO said when the housing market bounces back, Redfin will have “tremendous leverage.”
“As we get more revenues, we’ll hold our costs steady, and we’ll have a more efficient real estate operation,” Kelman said.
Redfin reported a Q1 net loss per share of $0.55, which beat expectations.
The company’s market share slid slightly year-over-year in the first quarter, from 0.79% to 0.78% of U.S. existing home sales by units.
Kelman said the drop was partially related to the company’s decision 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.
“Now that we’re not offering that on our site, we don’t have as much interest and demand,” Kelman said. “It’s been hard to replace that.”
Redfin’s mobile apps and website reached more than 50 million average monthly users, compared to 51 million in the first quarter of 2022. Zillow Group also reported a similarly flat number of average monthly users in its first quarter report this week.
Redfin is expecting revenue between $268 million and $281 million for the second quarter, down more than 20% year-over-year.
The company on Wednesday released a new ChatGPT plugin. The tool can be used to aid in the search and discovery of real estate, with users able to describe their ideal home or neighborhood in natural language. Zillow Group rolled out a similar ChatGPT plugin.
Redfin last month announced that employees must return to the office, citing the company’s recent struggles as part of the reason for the new mandate. Redfin said it has 112,000 square-feet in Seattle and it has put some of that space up for sublease.
Here are other highlights from Redfin’s Q1 earnings:
- In the first quarter, Redfin sold 14 homes through its properties division, and now just five homes remain as part of RedfinNow.
- Rentals generated $42.8 million in revenue, up slightly from $38 million last year. Redfin paid $608 million to acquire RentPath in February 2021, helping to grow that segment of the business.
- Mortgage revenue of $36.5 million was up from $28 million last quarter. The segment has grown after the company acquired Bay Equity Loans in April 2022. The mortgage attach rate — the number of people who got a home loan after purchasing a property via Redfin — has reached 20%, up from the 17% last quarter.
