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oldman Sachs analyst Michael Ng downgraded Redfin Corp. from Neutral to Sell, citing growing competition, agent commission pressures, and affordability challenges in the US housing market. Despite a weak housing market, Redfin's stock trades at 88x its 2025 enterprise value-to-EBITDA (EV/EBITDA), far above Compass Inc. and Zillow Group.

    Housing affordability is at its worst level on record, according to the National Association of Realtors. Affordability metrics show that monthly mortgage payments as a percentage of median household income are at their highest since 2004. The average 30-year fixed mortgage rate has declined slightly from 7.5% last year, but persistently high home prices and stagnant income growth continue to constrain affordability.

    Ng sees risks to Fannie Mae's forecast for US existing home sales to rebound by 11% in 2025, citing elevated mortgage rates, unaffordable home prices, and limited income growth. He believes affordability could weigh on a housing recovery, creating risk to forecasts.

    Declining agent commission rates across the industry pose another challenge for Redfin's business model. Following the Sitzer/Burnett v. NAR ruling in 2023, buyer agent commissions fell to 2.34% as of October 2024, creating headwinds for Redfin's revenue growth. Ng also flagged Redfin Rentals' competition with Zillow, which surged 30% year-over-year to $430 million.

    Redfin's gross margins from Real Estate Services declined by 260 basis points year-over-year in the third quarter of 2024 to 27.8%, falling short of consensus expectations. Ng foresees a 12-month price target of $6.50 on Redfin shares, reflecting a 23% downside. Shares fell 3.82% to $8.05 on Monday, hitting the lowest levels in three months.