Why Redfin Stock Sank 20.9% in December

According to S&P Global Market Intelligence data, Redfin shares (RDFN 4.39%) fell 20.9% in December. Redfin's online real estate platform published a number of reports throughout December highlighting the slowdown that is affecting the market. The Federal Reserve raised its benchmark interest rate in December. This was one of many occasions it did so in 2022. The Federal Reserve's current effective funds rate, just above 4% is the benchmark for all other lending institutions in the country. Redfin's research shows that homebuying transactions are at a standstill through the second half 2022. The average home was on the market for 37 days in the four weeks ended Dec. 4. This is up from the 17 days in June and 28 days last year. Prospective buyers are waiting on the sidelines as mortgage rates have doubled from a year ago, while home prices have barely fallen or remain high year over year in many areas. How does this affect Redfin? Redfin makes money when people buy homes through its platform. This means that it performs well in hot housing environments and poorly in cold ones. Redfin's financial statements are beginning to reflect the ice-cold housing market. Redfin's last quarter ended in September saw a 54% drop in gross profit year-over-year to $58.1million. Redfin also reported a net loss in excess of $18.9million, which is significantly higher than its loss of $18.9 million in the same quarter last year. It looks like Redfin and residential real estate will have a difficult few years unless the Federal Reserve changes its course. The company is experiencing difficulties in generating a profit, and it will likely see a decline in revenue by 2023. Redfin shares have a market capital of only $500 million. If you intend to hold them for the long-term, you might find some value. However, you must be certain that the company can survive the downturn. Brett Schafer does not hold any position in any of these stocks. Redfin is a stock that The Motley Fool recommends and holds positions in. The Motley Fool recommends these options: Redfin short-term $7 calls. The disclosure policy of the Motley Fool is available here