REDFIN - RDFN - US Housing Market Stocks Analysis

Companies / US Housing Mar 21, 2023 - 02:35 AM GMT

US House Prices Current State

My interim view as of early July 2022 based mainly on my stock market, economy and UK housing market analysis at the time (Stocks Bear Market Rally Last Gasp Before Earnings Season, US House Prices 3 Year Probability Range) concluded in an rough expectation for US house prices to target a gain of between 20% and 30% over the next 3 years that would be punctuated by a correction during 2023.

The latest Case Shiller 10 city index for November 2022 is 313, down form a peak of 330 in June 2022 (remember there is a 2 month lag in reporting of data). Thus US house prices have corrected by 5% from their highs though still positive on an 12 month basis at +6.3% which isn't anywhere near the shrill cries of the doom merchants such as Michael Burry of Mid 2022.

And given the background of soaring mortgage interest rates and contracting corporate earnings coupled with the inflationary cost of living crisis then +6.4% over the past 12 months is a sign of relative strength that suggests that yes US house prices whilst weak during 2023 are not going to fall off a cliff as many prospective buyers hope they will, after all the so called recession saw the US economy add 517,000 jobs last month, more than double market expectations! Thus the correction looks set to mild and prove temporary with prices set to resume their bull and likely to trade at new all time highs during 2024.

US Housing Stocks Mini Portfolio

Where housing stocks are concerned the more bad news the better which is the mistake most investors make when seeking good news to buy, countless times I get asked why am I buying x,y,z, stock when the news is so bad! We'll how else do you think you are going to get the stocks to trade down to a cheap prices? Not when the news is GOOD! You want the news to be BAD, DIRE, disastrous even because that is when one gets the greatest buying opps! It's why during October I looked like a porcupine given all the falling knives that I had tried to catch, which included a few US housing stocks though to very limited extent, pinprick exposures so as to get give me some skin in the game towards focusing on the US housing market.

REDFIN - RDFN

Redfin a former darling the US housing market that has been crushed like a bug in the rug, though which has stood the test of time, i.e. is not a recent IPO that could go bust but has gone through several housing booms and busts. The stock chart says it all! A high of 100 and recent low of just $5. Yes it is high risk, very high risk, but IF the probability of going bust is low then like many of the high risk stocks on my list such as Inmode then there is a good chance that post rate rise, recession expectations blues when the FOMO once more starts to build in the US housing market then stocks such as RedFin will be right at the front of that speeding GRAVY TRAIN, soaring to levels that will long since have shaken most early investors off, i.e. cashing in for peanut gains and then forever waiting for a dip to rebuy!

However to see if there are any signs of bull market life one needs to zoom in where what stands out is the heavy volume on it's decline below $7.50 where whilst the weak hands were throwing in the towel the smart money was buying hence Redfin put in a bottom and since rose a wall of worry, I actually did buy a sliver of exposure during October as one of the many falling knives I was getting stabbed with. The stock is attempting to breakout higher above its $13 high. Given that the broad market should correct and that Redfin is retreating from resistance, we should get a chance to accumulate at between $9.5 and $5.5. Yes it could be that volatile but I won't be getting greedy, I'll take whatever opportunity this crushed like a bug high risk stock gives to add to this potential X10 rocket.

Redfin could turn out to be one of the best US real estate investments for the next 5 years, 10X, 20X, could even 100X! given it's tiny market cap for all those who manage to stay on board this gravy train! Of course such potential huge returns carries with it the ultimate risk of LOSING IT ALL! A Hero or Zero Stock, so definitely not one for weak stomach investors because the fundamentals are BAD, the company is losing money quarter over quarter which is why it is trading at $9 bucks per share instead of $100! Bad news equals LOW prices, cannot get one without the other! Maximum doom and gloom is what yields the greatest opportunities. So yes the corporate news is bad, earnings are bad (has losses not earnings), balance sheet is bad, everything is BAD but that is why the stock is trading at $9. Redfin as Cathy Wood would say is a disrupter, disrupting the buyer / seller commission structure of the US housing market, it has a loyal customer base and is said to have a good app.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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