How a Change in Home Listings Could Impact Zillow and Redfin

Redfin and Zillow shares fell on Wednesday after news of a potential shakeup in the home listings landscape.

Redfin (ticker: RDFN) shares lost 8.5% to $5.66 at Wednesday’s close, while Zillow (Z) declined 5.3% to $42.25. The drops were greater than the broader market: The S&P 500 index lost 0.02%, and the Nasdaq Composite fell 0.2%. Redfin fell as much as 10.02% intraday, while Zillow was down 7.75% during the trading session.

The stocks’ movement doesn’t appear to be connected to macroeconomic housing market news. Mortgage rates, a prominent factor in recent conversations about housing demand, have remained below their 2022 peak above 7% in recent weeks, according to Freddie Mac and Mortgage Bankers Association data. Lower rates likely contributed to recent increases in home purchase loan applications, one early indicator of buyer demand. However, the uptick in the volume of mortgage applications doesn't mean demand is high. It's still 39% lower than last year for new purchases.

The recent increase in mortgage applications does not necessarily mean that demand is high. In fact, it is still 39% lower than it was last year for new purchases.

On Wednesday, two ETFs tracking home builders and related industries, the iShares U.S. Home Construction ETF (ITB) and the SPDR S&P HomebuildersXHB+0.41% ETF (XHB), both saw gains.

News Corp (NWSA) has confirmed that it is in talks with CoStar Group (CSGP) about the potential sale of Move, which operates home listings website Realtor.com. This follows an earlier announcement by Dow Jones, which is owned by News Corp, that it is exploring a sale of the company.

If the deal goes through, Move would become part of CoStar, a real estate information company that is well-known for its commercial real estate services. CoStar did not immediately respond to Barron's request for comment.

The potential acquisition of Move would be a game-changer for CoStar's strategy in the residential real estate space, Keefe, Bruyette & Woods analyst Ryan Tomasello wrote in a Wednesday note. The analyst's Outperform rating on CoStar shares and his price target of $98 were unchanged.

According to an analyst, Realtor.com's monthly visitors and brand awareness would accelerate CoStar's residential strategy by numerous years, catapulting the company to the #2 residential portal spot behind Zillow.

According to Bloomberg, which cited people familiar with the talks, the potential deal is worth about $3 billion. News Corp announced its acquisition of Move in 2014 for an all-cash tender offer of about $950 million.

According to News Corp's earnings release, Realtor.com averaged 86 million monthly unique users in its first fiscal quarter. Redfin's earnings release showed that its monthly visitors averaged about 51 million in its most recent quarter. Zillow's most recent quarterly report said that it has 236 million average monthly unique users.

The sale is not yet finalized. In a statement, News Corp said that "there can be no assurance any transaction will result from these discussions." A spokesperson for the company declined to comment further.

Investors in companies such as Redfin and Zillow may have been rattled by the possibility of a new competitor entering the market. Representatives for Redfin and Zillow declined to comment on their stock movements.

Zillow and Redfin have both outperformed the broader market this month. Year-to-date, Zillow is up 32.3% and Redfin is up 35.7%. In comparison, the S&P 500 is up 4.5% and the Nasdaq is up 8.1%.