Opendoor Technologies (OPEN -10.53%) experienced a significant decline in its stock value recently, contributing to the broader downward trend in real estate stocks. On Tuesday, the stock was down by 10.5%. This decline is primarily attributed to the company’s sensitivity to interest rates and mortgage rates, both of which have been on the rise in recent months.
As a home-flipping specialist, Opendoor’s business model revolves around purchasing properties, making necessary improvements, and subsequently selling them at a profit. In a robust housing market, this model proves successful. However, the current scenario poses challenges as mortgage rates continue to increase while home sales remain weak.
The prospects for the housing market facing prolonged difficulties have heightened with the 10-year Treasury yield reaching 4.8%, leading to a 30-year fixed-rate mortgage of 7.72%, according to Mortgage News Daily. Consequently, monthly mortgage payments have become unaffordable for many potential homebuyers.
To adapt to the challenging housing market and the impact of rising rates, Opendoor has already begun reducing its home purchases. However, with the expectation that rates will remain elevated over the next year and potentially into 2025, the chances of a stock recovery in the near future appear slim.
Although Opendoor remains well-capitalized with $1.2 billion in cash and equivalents, the company still reported an adjusted EBITDA loss of $168 million. As mortgage rates are expected to remain high, achieving profitability becomes even more challenging, ultimately influencing the recent decline in the company’s stock.
In conclusion, Opendoor Technologies’ stock experienced a notable decline in value due to increasing interest rates and mortgage rates. The company’s business model heavily relies on favorable market conditions, making it susceptible to challenges during periods of rising rates. Despite its strong capitalization, Opendoor may struggle to reach profitability as long as mortgage rates remain high.