Amid consecutive federal rate hikes, mortgage rates have soared to record highs in 2022. According to Freddie Mac, the average 30-year, fixed-rate mortgage rose to 7.08% for the week ending November 10, 2022. Housing experts believe mortgage rates will average around 5% to 6% in 2023, and some think it will hit higher.
Consequently, consumer confidence in the housing sector has dropped drastically. According to a monthly survey by Fannie Mae, in October, just 16% of consumers opined that now is an ideal time to buy a home.
“As continued affordability constraints reduce homebuyer demand, and homeowners become reluctant to sell at potentially reduced prices, we expect home sales to slow even further in the coming months, consistent with our forecast,” wrote Doug Duncan, Fannie Mae’s chief economist.
Moreover, according to the National Association of Home Builders, sales of newly built homes dropped below pre-pandemic levels in September, and cancellations increased twice year-over-year.
Therefore, fundamentally weak real estate services stocks Opendoor Technologies Inc. (OPEN) and Fathom Holdings Inc. (FTHM) could be best avoided now.
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate in the United States. The company’s platform enables consumers to buy and sell a home online. It also provides title insurance and escrow services.
On October 20, 2022, Levi & Korsinsky, LLP notified OPEN investors of a class action securities lawsuit that aims to recover their losses due to alleged securities fraud.
OPEN’s negative EBITDA and net income margins of 4.14% and 6.93% are lower than the industry average of 56.35% and 17.37%, respectively.
OPEN’s revenue came in at $3.36 billion for the third quarter that ended September 30, 2022, up 48.3% year-over-year. However, its gross loss came in at $425 million, compared to a profit of $202 million in the year-ago period. Moreover, its adjusted net loss came in at $328 million, up 1,722.2% year-over-year.
OPEN’s revenue is expected to decrease 31.2% year-over-year to $2.63 billion for the quarter ending December 2022. Its EPS is expected to decline 165.5% year-over-year to negative $0.77 for the same period. It missed EPS estimates in three of four trailing quarters.
Over the past month, the stock has lost 35% to close the last trading session at $1.91.
OPEN’s POWR Ratings reflect its poor prospects. It has an overall grade of F, which indicates a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an F grade for Growth, Stability, Sentiment, and Quality and a D for Momentum. Click here to access the additional POWR Ratings for OPEN (Value). OPEN is ranked #40 out of 42 stocks in the F-rated Real Estate Services industry.
Fathom Holdings Inc. (FTHM)
FTHM provides cloud-based real estate brokerage services in the South, Atlantic, Southwest, and Western parts of the United States. It operates through three segments: Real Estate Brokerage; Mortgage; and Technology.
FTHM’s negative trailing-12-month EBITDA and net income margins of 3.90% and 5.01% are lower than the industry averages of 56.35% and 17.37%, respectively.
FTHM’s total revenue came in at $111.26 million for the third quarter that ended September 30, 2022, up 10.2% year-over-year. However, its loss from operations came in at $5.90 million, up 60% year-over-year. Its net loss came in at $6.01 million, up 78.2% year-over-year, while its loss per share came in at $0.38, up 58.3% year-over-year.
Analysts expect FTHM’s revenue to fall 4% year-over-year to $91.61 million for the quarter ending December 2022, while its EPS is estimated to decrease 54.2% year-over-year to a negative $0.37 for the same period. It missed EPS estimates in three of four trailing quarters.
Over the past month, FTHM has lost 11.1% to close the last trading session at $4.00.
FTHM’s overall D rating equates to Sell in our POWR Ratings system. Also, it has an F grade for Quality and a D for Growth and Sentiment.
Click here to access the FTHM value, Momentum, and stability rating. It is ranked #38 in the same industry.
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OPEN shares rose $0.06 (+3.14%) in premarket trading Friday. Year-to-date, OPEN has declined -86.52%, versus a -15.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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