J.P. Morgan forecasts upside for Zillow, Redfin amid housing downturn

The Yahoo Finance Live team discusses the housing market, pending home sales, and forecasts for the year.

Video transcript

JARED BLIKRE: Let us get you up to speed on January's pending home sales. The index increasing for the second consecutive month of 8.1% from December, the largest jump since June of 2020, just about three years ago. Despite this bump, pending home transactions are down by 24.1% year over year, with the National Association of Realtors chief economist joining us, Lawrence Yun, saying, an annual gain in annual home sales will not occur until 2024.

SEANA SMITH: Yeah, certainly, lots of questions just about where, Jared, this real estate industry stands right now because, yes, that month over month increase, it was the best that we had seen since 2020. Yet, the year over year decline, off over 20% on a year over year basis certainly just highlights that this industry is very weak, up against a challenging macroeconomic backdrop.

Mortgage rates, they had shown some improvement during the month of January. But they have also begun to tick higher. So not much hope that some of that momentum that we have seen from the last two months, that that, of course, is going to carry through here over the coming months, given the fact that mortgage applications to buy a home, they fell for much of February. Pending home sales off 24% year over year basis. So certainly a challenging picture here for housing.

Now JPMorgan, though, despite the confusing macroeconomic backdrop right now, they initiated their positions on Zillow and also on Redfin, out with a new note today. They're overweight Zillow. They have a neutral rating on Redfin. Expect a recovery to begin in the latter half of this year in 2023. So the bull case here from JP Morgan on Zillow, the fact that it can navigate some of those near-term headwinds because it is the most visited online real estate platform, they do have solid margins, they do have that active share repurchase program. That, of course, giving Zillow the edge.

On Redfin, though, the other hand, the brokerage model making navigating some of these near-term headwinds more challenging. So they, at least, see the risk-reward balanced here at current levels, also given the macroeconomic backdrop right now. So higher mortgage rates could be a little bit troubling for this industry, at least over the next several months.

JARED BLIKRE: Yeah, now I'll show you, a picture is worth a thousand words here on the YFi Interactive. I have Zillow Group up over-- it looks like this is a max chart. So you can see, most of the activity here took place between the prices of about $20 and $30 and $60, except for the pandemic when we had that huge boom right there. But things have normalized, so steadying. I would say they settled back into that very old trading range right here.