Interest rates are coming down soon. That’s good news for Opendoor.
Shares of Opendoor Technologies (OPEN 13.61%) were among the winners today after Fed Chair Jerome Powell gave dovish remarks about interest rates at a closely watched speech in Jackson Hole, Wyoming.
Real estate stock investors have been anticipating news that the Federal Reserve would lower rates soon, and Powell’s embrace of rate cuts sent Opendoor and its real estate tech peers soaring today. As of 1:02 p.m. ET, shares of the online real estate flipper were up 13.1%.
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Opendoor gets a gift from the Fed
Opendoor’s business is buying and selling residential real estate, which makes the company highly sensitive to mortgage rates. Opendoor stock crashed when the Fed rapidly raised rates in 2022 as homebuying demand slowed significantly. The company has since streamlined its business, cutting inventory and laying off employees.
The home-flipper should also benefit from any effect on the housing market that raises home prices, and lower rates generally accomplish that, though home prices are at all-time highs now, even with elevated mortgage rates. Regardless of price movement, lower rates will almost certainly spur homebuying demand, which will benefit Opendoor.
Is Opendoor stock a buy?
Opendoor’s business has improved since the stock plunged in 2022, but it’s still facing challenges. In the seasonally strong second quarter, it reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $5 million, which was much better than its loss of $168 million but shows the company is still struggling to turn a profit.
It’s accelerating its homebuying, purchasing 4,771 homes in the second quarter, up 78% from the prior year. This shows confidence in the housing market and its own demand pipeline, though it still expects another EBITDA loss in the third quarter.
Management did say, however, “We believe that we are well positioned to benefit from any potential tailwinds from positive changes in interest rates.”
Opendoor remains a high-risk stock but has upside potential in a healthier housing market. Don’t be surprised to see the stock keep climbing if investors get more good news on the interest rate front.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Opendoor Technologies. The Motley Fool has a disclosure policy.