Arizona-based Opendoor Technologies (NASDAQ:OPEN) provides a digital marketplace for real estate. The company offers a tech-enhanced platform that can simplify the process of buying or selling a home. It’s a good business model in theory, but OPEN stock holders are still struggling in 2022. They’re likely to continue having problems because the housing market is weakening.
When the Covid-19 crisis subsided in the second half of 2020 and in 2021, Americans were in the mood to spend money. They bought practically anything and everything, including homes. Thus, a boom in residential real estate was born.
Since we live in a digital economy, it makes sense that a platform like Opendoor should come along and revolutionize the real estate market. However, a company that thrives during a real estate boom can struggle when market conditions change. At the same time, financial traders must know when to avoid value traps, even with a promising business like Opendoor Technologies.
What’s Happening With OPEN Stock?
Does OPEN stock fit the definition of a value trap? Just ask the unfortunate individuals who bought the stock at $34 in February 2021, or at $23 in October of that year. They might have thought the stock was a great value, but now they’re trapped, as it recently traded near $5.
The point is, just because a stock has fallen in price, that doesn’t mean it can’t go lower. Still, it’s understandable if financial traders see great promise with Opendoor Technologies. After all, the company is a pioneer in modern real estate.
Opendoor’s investor presentation emphasizes the platform’s simplicity, certainty and speed. Indeed, the Opendoor app is simple to use and very fast. Is there a real sense of certainty in the current housing market, though?
The Housing Market Is Softening
In Opendoor’s defense, it’s commendable that the company swung from a net earnings loss in 2021’s first quarter to a net profit in the first quarter of 2022. That’s certainly a good sign.
Its fiscal outlook is far from ideal, though. As InvestorPlace contributor Stavros Georgiadis pointed out, “Opendoor is now expecting negative revenue growth for Q2 2022.” Moreover, “even the high end of its expectations are lower than the $5.15 billion it managed in Q1 2022.”
Georgiadis also observed potential issues with Opendoor’s balance sheet, as well as concerns about the possible dilution of OPEN stock. The biggest problem for Opendoor Technologies, though, might be a macro-level headwind in the U.S. housing market.
Reportedly, the 30-year fixed rate for U.S. mortgages recently rose to 5.51%. This is an effect of the Federal Reserve hiking interest rates multiple times this year.
Consider this: if someone has a mortgage rate of, say, 2.8% or 3.1% locked in right now, they might not want to switch to a home with a 5.51% rate. This might help to explain why June’s new home sales declined 8.1% year-over-year (YOY) and came in below estimates.
What You Can Do Now With OPEN Stock
Opendoor Technologies has a technology-enhanced platform that simplifies the process of buying a home. However, buyers may be dis-incentivized due to currently unfavorable housing market conditions.
That’s not Opendoor’s fault, but it’s a problem nonetheless. Therefore, it’s sensible to hold off on buying OPEN stock for the time being, as it’s vulnerable to further declines.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.