Real Estate Companies Dip As Stock Market Tallies Worst Day In 2 Years

Real estate stocks fell on Wall Street, too — though even before the carnage they were already hovering near all-time lows.

The stock market took a beating and ultimately had its worst day in more than two years Tuesday after news broke that inflation was worse than anticipated.

Many real estate stocks were pulled down with the rest of the market, though the losses were moderated by the fact that many firms in the housing sector had already fallen to all-time lows in the days and weeks prior.

The big numbers from Tuesday’s market performance include 1,276.37 points, which is how much the Dow Jones Industrial Average fell by the time the markets closed. That’s a drop of nearly 4 percent, and represents the market’s worst day since June 2020. The Nasdaq plummeted 5.16 percent. It was also the worst day for the Nasdaq since June of 2020.

This chart shows the Dow’s five day performance, and illustrates Tuesday’s precipitous drop. Credit: Google

The S&P 500 fell 4.32 percent.

To put this into context, June of 2020 was when the U.S. was only a few months into the coronavirus pandemic, and when the economic impact of the crisis were still uncertain.

So why did the market drop like a rock Tuesday? It boils down to inflation.

Specifically, the U.S. Bureau of Labor Statistics published a report Tuesday morning showing that consumer prices were 8.3 percent higher in August than they were at the same time last year. Though some things such as gas prices offered some relief, overall consumer prices showed virtually no change in August compared to one month prior. Housing in particular was one of the biggest contributors to inflation.

Economists suggested the new numbers Tuesday would require a “hawkish” response from the Fed.

Most publicly traded real estate companies were down Tuesday along with the rest of the market. Compass fell 10.06 percent and ended the day with shares trading at just over $3. Anywhere fell near 8.6 percent, leaving shares at just under $9.50. Zillow’s stock dropped 4.47 percent, and its shares were trading for $35.87 by the end of the day. And Redfin ended trading Tuesday with shares at $8.10, a drop of nearly 8 percent from the price when markets opened.

Though some of these drops are significant in terms of percentages, in many cases the share prices Tuesday were still higher than they were earlier this month. At the beginning of September, for instance, Compass shares were trading for an all-time low of $2.62. Redfin also hit an all-time low earlier this month, with shares dropping to barely more than $7.

Other companies that also hit all-time lows earlier this month include iBuyers Opendoor and Offerpad. Meanwhile, companies such as eXp World Holdings didn’t hit all-time lows, but still experienced a similar long-running decline that brought share prices well below the peaks they hit last year.

This chart compares the share price performance over the last nine months for Zillow (orange), Anywhere (blue), Opendoor (green) and Compass (dotted black). Credit: barchart

The reasons for real estate companies’ struggles in the stock market are complex, but have to do with the cooling housing market, as well as limited investor interest in the tech sector — which includes many of the hardest hit housing firms. Real estate companies that have prioritized rapid growth over profitability — Opendoor and Compass both fall into that category — have in particular taken a bruising in the stock market.

In the week and a half since hitting their low points, many real estate companies have had modest rebounds. Opendoor shares surged to more than $5 on Monday, for instance, while Compass shares rose to nearly $3.40. Over the last five-day period, almost every major real estate company’s share price was up slightly.

However, the broader market carnage on Tuesday wiped out some of those gains and ensured that real estate firms that have been knocked down over the past few months stayed down.

Update: This post was updated after publication with additional information about real estate companies’ recent market performance. 

Email Jim Dalrymple II

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