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Based in Arizona Open door technologies (NASDAQ:OPEN) provides a digital marketplace for real estate. The company offers a technologically 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 will likely continue to struggle as the housing market weakens.
When the Covid-19 crisis subsided in the second half of 2020 and into 2021, Americans were in the mood to spend money. They bought just about anything and everything, including houses. Thus, a boom in residential real estate was born.
Since we live in a digital economy, it makes sense for a platform like Opendoor to come along and revolutionize the real estate market. However, a business that thrives during a real estate boom may struggle when market conditions change. At the same time, financial traders need to know when to avoid value pitfalls, even with a promising company like Opendoor Technologies.
What’s going on with OPEN Stock?
Does the OPEN action meet the definition of a value trap? Just ask the unfortunates who bought the stock at $34 in February 2021 or $23 in October of the same year. They might have thought the stock was great value, but now they’re trapped because it recently traded near $5.
The thing is, just because a stock has gone down in price doesn’t mean it can’t go down. Still, it’s understandable that 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 simplicity, certainty and speed of the platform. Indeed, the Opendoor application is simple to use and very fast. But is there any real sense of certainty in today’s housing market?
The housing market is softening
In Opendoor’s defense, it’s commendable that the company went from a net profit loss in the first quarter of 2021 to a net profit in the first quarter of 2022. That’s certainly a good sign.
However, its fiscal outlook is far from ideal. As InvestorPlace Contributor Stavros Georgiadis pointed out, “Opendoor now expects negative revenue growth for the second quarter of 2022.” Additionally, “even the high end of its expectations is below the $5.15 billion it managed in the first quarter of 2022”.
Georgiadis also observed potential issues with Opendoor’s balance sheet, as well as concerns about possible dilution of OPEN shares. The biggest problem for Opendoor Technologies, however, could be a macro-level headwind in the US housing market.
According to reports, the 30-year fixed rate on US mortgages recently increased to 5.51%. This is an effect of the Federal Reserve, which has raised interest rates several times this year.
Consider this: if someone has a mortgage rate of, say, 2.8% or 3.1% locked in right now, they may not want to move to a house with a rate of 5.51%. . This could help explain why June new home sales were down 8.1% year-over-year (YOY) and below estimates.
What you can do now with OPEN Stock
Opendoor Technologies has a technology-enhanced platform that simplifies the home buying process. However, buyers may be discouraged by current unfavorable housing market conditions.
It’s not Opendoor’s fault, but it’s still a problem. Therefore, it is a good idea to hold off on buying OPEN shares for the time being, as they are vulnerable to further declines.
As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.