3 Stocks to Sell (or Short) Before the Housing Market Cracks

Stocks to sell

Multiple signs are indicating that the U.S. economy’s “higher for longer” interest rates are starting to take a greater toll on the country’s housing market. First, last month the number of homes for sale whose prices were reduced came in at nearly 278,000, according to the Federal Reserve.

That represented the highest level since October 2022. Secondly, in related news, the number of homes listed for sale soared 30% in April compared with the same period a year earlier. And in April Barron’s noted that existing home sales reached “a near-30-year low in 2023 as costs rose.” The publication added that the continued, elevated interest rates could cause sales volumes to drop further this year.

Such a development would weigh on the demand for many goods, ranging from appliances to home-improvement products to some raw materials. Here are three stocks for investors to sell and/or short amid the U.S. housing market’s malaise.

Whirlpool (WHR)

Source: Grand Warszawski / Shutterstock.com

Whirlpool (NYSE:WHR) is being hit hard already by the weak volume of home sales. In the first quarter, the appliance maker’s top line fell 3.4% versus the same period a year earlier to $4.49 billion, while the earnings per share of its continuing operations sank a huge 33% year-over-year to $1.78. Moreover, the EBIT of the firm’s North American unit tumbled 49% YOY to $135 million.

Also, discouragingly, well-known multi-billionaire investor David Tepper unloaded his entire stake in WHR stock last quarter. Furthermore, back in February, Whirlpool was the most shorted company in the entire S&P 500. I believe that, in this case, the short sellers are right because the firm is indeed performing woefully as the U.S. real estate market struggles.

That makes sense because not only is the firm likely being hurt by low home sales volumes which results in fewer new homeowners updating their appliances, but high interest rates are also likely probably preventing many existing homeowners from buying new appliances.

Zillow Group (Z)

Source: OpturaDesign / Shutterstock.com

On May 1, Zillow Group (NASDAQ:Z), which provides services to real estate agents, provided weaker-than-expected Q2 guidance. Specifically, the firm now expects its sales for the quarter to come in at $525 million to $540 million, versus analysts’ mean outlook at the time of $559.6 million. What’s more, it anticipated that it would generate EBITDA, excluding certain items, of $85 million to $100 million, well below the mean e4stimate at the time of $130 million.

And in negative news for the whole real estate sector and housing market, the firm expects total transaction volumes within U.S. residential real estate to be flat during the current quarter. That would mark a deceleration from the 4% year-over-year growth seen in Q1. And in Q1, its net loss rose to $23 million versus its $22 million loss in Q1 of 2023.

Given the significant macro issues that Zillow is facing, the YOY increase of its net loss in Q1, and its weaker-than-expected Q2 guidance the firm’s current forward price-earnings ratio of 55.9 times is far too high.

As a result, I definitely view Z stock as being in the group of stocks to sell and/or short.

Opendoor Technologies (OPEN)

Source: PREMIO STOCK/Shutterstock.com

The pressure on the housing market that I described in my introduction is going to make life significantly harder for home flipper Opendoor Technologies (NASDAQ:OPEN). And the company has already been struggling mightily this year.

Specifically, in Q1, its top line plunged 61% versus the same period a year earlier to $1.2 billion, while its gross profit plummeted to $114 million last quarter compared with $170 million in Q1 of 2023. And for the full year, Opendoor expects to generate a large EBITDA loss, excluding certain items, of $25 million to $35 million.

In March, Opendoor CEO Carrie Wheeler admitted that home buyer demand has decreased. With that trend, as I explained in my introduction, intensifying, the company’s financial results are likely to deteriorate further going forward.

Investor’s Business Daily gives OPEN stock a dismal Composite Rating of 23 out of a possible 99. Additionally, the shares have a horrible Relative Strength rating of 9 out of 99, indicating that they’ve performed extremely poorly over the past year.

On the date of publication, Larry Ramer did not hold (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

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

Articles You May Like

Acurx Pharmaceuticals to add up to $1 million in bitcoin for treasury reserve, following MicroStrategy’s playbook
Autonomous Vehicles: Why 2025 Will Usher in the Self-Driving Car
Dental supply stock rallies on theory RFK’s anti-fluoride stance will prompt more dentist visits
5 More Trump Stocks to Trade
Top Wall Street analysts are upbeat on these stocks for the long haul