Shares of Redfin (NASDAQ: RDFN) were surging today in response to dovish remarks on interest rates from Federal Reserve Chairman Jerome Powell this morning at the annual Jackson Hole Economic Symposium.
Powell's comments typically make news, and the Fed chair said that the central bank was ready to lower interest rates, adding, "the time has come."
That's a bullish sign for Redfin and other real estate stocks as the housing market is highly sensitive to interest rates. As a result, Redfin stock was up 16.6% as of 10:36 a.m. ET.
Saved by the Fed
Like other real estate stocks, Redfin shares soared during the pandemic on a hot real estate market, fueled by low mortgage rates as well as demand for second homes and larger spaces due to the pandemic.
However, as interest rates rose after the pandemic, the housing market went cold and Redfin stock plunged, falling more than 90% from peak to trough.
When asked on a recent earnings call what the company would do if rates went back up, CEO Glenn Kelman said the company had built a more resilient model that could gain market share regardless of the direction of interest rates.
Where does Redfin stock go now?
There's likely a lot of pent-up demand in the housing market due to the lock-in effect of low mortgage rates and slow home sales in the last couple of years, and Redfin should be able to take advantage of that in a lower interest rate environment.
The company could also benefit from the new National Association of Realtors settlement, which is expected to lower realtor commissions.
One thing is clear. There's a lot of upside to Redfin stock if interest rates come down. Redfin will have to capitalize on that opportunity, but investors seem confident that it can, based on today's pop in the stock.
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Jeremy Bowman has positions in Redfin. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short August 2024 $11 calls on Redfin. The Motley Fool has a disclosure policy.
