Corporate quarterly reports, unless they include dramatic swings in earnings, are often same-old, same-old. However, when the industry is in a state of flux, as is the case with residential real estate, often the comments made by the leading executives are more telling than the numbers.
That was the case with Redfin on Aug. 6, when the portal and brokerage company’s CEO, Glenn Kelman, voiced surprise at the lack of the market’s pace in 2024.
“We’ve been glad the rentals segment has reduced our dependence on the for-sale market, because the for-sale market had, at least until last week, been terrible,” he said. “Over the four weeks ending July 28, industry-wide pending sales fell 5.3% year over year, and the decline had been widening even as rates began to ease. Inventory is rising but 30% below pre-pandemic levels. Affordability is near a 40-year low.
“The market is significantly shifting in buyers’ favor. Twenty-two percent of active listings have dropped their price, the highest percentage since we began tracking this number in 2012; 36% of listings accepted an offer within two weeks of their debut, down from 41% the year prior.
“Interest-rate declines haven’t so far increased competition for listings. From April 30 to July 24, mortgage interest rates fell from about 7.5% to about 6.9%, with almost no reaction from homebuyers. Industry-wide mortgage-purchase applications have been mostly below last year’s levels. It has been the first time in years that a major interest-rate drop had no impact on home-buying demand.”
The financial numbers
Kelman was pleased with Redfin’s performance in Q2 2024, with the company reporting revenue of $295 million, up 7% from a year ago, stating that “in a still-declining market, Redfin grew revenues, profits and market share.” It marked the second straight quarter of organic revenue growth. Gross profit of $110 million was up 9% year-over-year, and total gross margin expanded from 36% to 37%. Total operating expenses were $139 million, down $10 million year-over-year. The company had a net loss of $27.9 million, slightly more than the $27.4 million it lost one year earlie
Real estate services generated $188 million in revenue, up 4% year-over-year. Brokerage revenue, or revenue from home sales closed by Redfin agents, was up 5%, on a 3% increase in brokerage transactions and a 1% increase in brokerage revenue per transaction.
Kelman was pleased with the growth of Redfin Next, which shifts agents from a salary model to a commission model. Redfin first started the program in four California markets but it is in many more states now.
The CEO recognized that home sales have yet to pick up steam overall, but he’s optimistic.
“Agents we polled about the low number of offers cited broadening economic anxieties, the distraction of a presidential election, and homebuyers’ growing belief that time is on their side,” he said. “In a shifting market, sellers often get stuck on the asking price from last month, while buyers imagine they can get an even better deal next month. If rates keep falling, U.S. home sales should increase. We expect rates will stay low through the winter and into next spring, which should lead to a much stronger housing market in 2025.
“It has been the first time in years that a major interest rate drop had no impact on home-buying demand. I can’t remember a time where rates came down this far this fast and the market has been so muted in its response. But I believe the housing market is about to get better, and that Redfin is also going to take share.”
