Redfin stock tanks as Needham slashes 2023 housing market outlook

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Redfin (NASDAQ:RDFN) stock experienced its worst intraday slump since November 2022, plunging as much as 15.3% earlier on Wednesday, after Needham analyst Bernie McTernan slashed his 2023 outlook for the U.S. housing market and reduced top-line estimates for the residential real estate brokerage and rivals Zillow Group (NASDAQ:Z) (NASDAQ:ZG) and Compass (NYSE:COMP).

Housing affordability is hovering around its lowest in 15 years driven by higher mortgage rates and elevated home prices, McTernan wrote in a note, citing data from the Atlanta Fed.

The analyst sees home sales dropping 18% Y/Y in 2023, compared with his previous forecast of a 10% decline. “Worsening macro conditions could put our estimates to the test, and worsen the affordability issues while housing supply remains tight.

“We think revenue growth is more necessary to drive Z (Z) and RDFN (RDFN) equity higher, and we think will be difficult with November and December existing home sales down YoY -36% and -37%, respectively,” the note said. McTernan noted he preferred Compass (COMP), which remains his top pick in the industry, on expectations that it stands to benefit from its increased cost-cutting efforts.

As the broader stock market cut earlier losses, RDFN pared its decline, dipping 5.9% as of 3:31 p.m. ET. Similarly, COMP gained 5% after retreating as much as 4.2% in morning trading, and Z's 4.5% dip improved from the 7.6% fall earlier.

Seeking Alpha contributor UFD Capital recommended Zillow investors to stay sidelined until the weakness in the housing market diminishes.