Does a good earnings season portend trouble to come?

Stranger things are afoot in real estate.

Over the past two weeks, at least 11 major real estate companies have published their earnings reports. These reports showed how different companies performed during the first three months of this year, and they were mostly upbeat. Overall, these companies have been able to make the claim that they are doing better now than they did a year ago. Their leaders were almost universally optimistic about their prospects. Revenue soared.

And after.

There was also a sense of anxiety. Perhaps it was the fact that despite the increase in revenue, companies saw a decrease in other metrics. This was probably the number of times the word “headwind” came up during calls with investors. Maybe two years after the pandemic, everyone is tired.

But either way, this latest round of earnings had two big themes. The first is that the good times are still going on. But the second is that it may not last long.

The good times are rolling in

It cannot be stressed enough that this has generally been a good earnings season for real estate companies. Zillow, for example, managed to reverse its disastrous losses from the previous quarter and already made a profit of $16 million. The mega portal also generated $4.3 billion in revenue, up 250 percent year over year.

Results at eXp Realty were similarly rosy: The brokerage increased its revenue 73 percent year-over-year to $1 billion and saw its overall profit increase 56 percent to $83.5 million.

The old companies had good accommodations, too. RE/MAX, for example, grew 25.9 percent year-over-year revenue and managed a profit of $1.5 million, a slight increase compared to the first quarter of 2021. Keeler Williams — which is not a public company and does not release revenue and profitability numbers — revealed that Its dealerships generated $108.4 billion in dealer sales volume in the first quarter of 2022, an increase of 10.5 percent year-over-year.

Finally, Redfin also had a good week. Although the company posted a net loss of $90.8 million, it beat analysts’ expectations and generated $597.3 million in revenue. And that was apparently good enough for investors, because Redfin shares jumped nearly 10 percent the day after the earnings report.

The list of positive reports could go on, but the point should be clear by now: Overall, the past two weeks have been a solid earnings season.

iBuyers did particularly well

Another thing worth mentioning here: iBuyers had a very good week.

First, Offerpad revealed that it posted profit for the second consecutive quarter, while revenue was also up 384 percent year over year.

In bigger news, Opendoor has arguably had its first ever profitable quarter. The company specifically generated revenue of $5.2 billion and recorded a net income of $28 million.

That iBuyers performed so well was not a foregone conclusion. Last fall, Zillow — which was iBuyer’s second largest after Opendoor — announced that it was going out of the money supply business. This news sparked a debate about whether iBuying itself is truly sustainable, and whether other companies might eventually repeat Zillow’s falter.

This week’s earnings report suggests that won’t be the case, and lends support to the idea that iBuying is here to stay.

The good times may not last longer

Despite all this good news, it was hard not to notice what sounded like warning signs in all of these earnings reports. In some cases, it was because company leaders openly mentioned problems on the horizon.

Glenn Kellman | Image credit: Redfin

For example, Redfin CEO Glenn Kellman said his company is “very cautious about the housing market in general.”

“The point of the most suffering is when the best preparation for it wins,” Kellman also said. “Redfin is at this point in our race.”

Zillow’s CEO Rich Barton’s comments were similarly intimidating and described the housing outlook as “intermittent”.

“These market conditions are not good for the majority of real estate companies,” Fathom Realty CEO Josh Harley said on a call with investors.

Mark King

Several corporate leaders have also raised “headwinds”. Glenn Sanford of EXp used this word. So did Zillow CFO Allen Parker. As did Mark King of Keeler Williams. Other companies have hinted at the concept, and eventually the word “headwind” has appeared in the vast majority of earnings stories Inman has posted over the past week.

To be clear, all the CEOs who have taken an opinion recently have been optimistic about their companies’ prospects. But it also seemed somewhat united in the notion that the housing market is heading toward relatively stormy waters.

In some cases, the headwind is already blowing. For example, Move Inc. – Parent company of Realtor.com and itself a subsidiary of News Corp – Increase in revenue during the first three months of the year. So this is good news for the company. But the increase was modest, at just 5 percent year on year. In the second consecutive quarter, the company saw such small gains. Realtor.com has also seen a decrease in the average number of users per month on its websites and mobile apps, as well as a decrease in lead volume. The company’s report noted that the numbers represented a “challenging comparison to the prior year,” and News Corp CEO Robert Thompson stated “the ebb and flow of market forces.”

Move Inc. was not. Just one event.

Keeler Williams also revealed in her report that despite the increase in sales volume, it also saw a decline in transactions, new listings and expected closing volumes.

Realogy — which reported earnings at the end of April — also had a profitable quarter at the start of 2022, but was a slightly less profitable quarter than the same quarter a year earlier.

None of these numbers seem like the end of the world is imminent. But they point to the possibility that the endless growth of recent years may have reached its limits.

This chart compares the percentage change in stock price over the past month for five real estate companies: Zillow (gray), Opendoor (blue), eXp (orange), Realogy (purple) and Redfin (green). The total is downward. credit: Barchart

Investors have also shown a mixed response to the recent earnings. Although some companies including Redfin and eXp saw their stock prices rise by meaningful proportions, others like Offerpad and Realogy saw more modest gains following their reports. Zillow and Opendoor also saw their stock prices fall – although in the latter case Opendoor had its first-ever profitable quarter.

Part of what is happening may be that the market in general has taken a heavy hit lately. But real estate stocks have generally underperformed for more than a year now, and that doesn’t seem to be changing amid mounting fears about a recession, ever-increasing mortgage rates, and a shortage of inventory that won’t stop.

So, the takeaway appears to be that investors, like corporate leaders who have recently shared their earnings results, see headwinds on the horizon for the housing industry.

Read all of Inman’s first-quarter earnings coverage below, and check back in the coming days for the last few reports of the season.

Zillow posts first-quarter profit as housing market fluctuates

Keeler-Williams reported $108 billion in sales with lower transactions in the first quarter

Opendoor posted its first profitable quarter in the first quarter with net income of $28 million

RE/MAX revenue jumps in first quarter thanks to higher home prices

EXp Realty generates $1 billion in revenue, and the number of agents is up in the first quarter

Redfin gets nearly $600 million in first-quarter revenue as market share grows

Offerpad remains profitable for the second consecutive quarter

Reallogy builds on revenue growth last year with first-quarter earnings

Airbnb announces ‘a new world of travel’ as bookings surge in first quarter earnings

Move Inc’s revenue growth declines. To single digits amid market shift

Fathom Projects continued revenue, agent and transaction growth

Email Jim Dalrymple II

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