Shares of Redfin (RDFN 15.91%) rallied 15.9% on Thursday as investors in the online real estate platform celebrated the prospect of lower interest rates in the coming year.
Good news for mortgage rates
Redfin’s pop today extended a late rally that began Wednesday afternoon after U.S. Federal Reserve officials opted to leave their benchmark interest rate flat for the third straight month, at a targeted range of between 5.25% and 5.5%. More exciting for investors in Redfin, however, is that policymakers on the Federal Open Market Committee also signaled there will be at least three rate cuts in 2024. This will mark the first rate reductions since the Fed began raising rates in March 2022 in an effort to combat sky-high inflation.
Investors should keep in mind that the Fed doesn’t directly set mortgage rates. But its management of the federal funds rate does influence mortgage lenders as they ascertain how much interest to charge on mortgage loans.
Suffice it to say if mortgage rates come down, it could serve as a significant positive catalyst for Redfin as it works to recover from persistently high mortgage rates and a weak housing market.
What’s next for Redfin stock?
In a press release early this morning, Redfin highlighted that daily average mortgage rates have already declined to 6.82% — the first time daily rates have dipped below 7% since July — while housing payments have fallen to their lowest level since April.
“Rates dropped after the Fed brought good news to homebuyers at its December 13 meeting, indicating they’re on a path toward lowering interest rates more and sooner than expected,” Redfin elaborated. “That’s another piece of evidence that mortgage rates are likely to drop into the mid-6% range in 2024, consistent with Redfin’s housing-market predictions.”
Shares of Redfin are still down around 90% from their early 2021 peak. But the stock has also more than doubled so far in 2023. As more investors bet on its inevitable turnaround as rates continue to reject, this pop might well be the start of a much more encouraging long-term trend.
Steve Symington has positions in Redfin. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short February 2024 $8 calls on Redfin. The Motley Fool has a disclosure policy.
