Opendoor Technologies (Nasdaq: OPEN) is a company that’s revolutionizing the home buying process. Opendoor will send you a cash offer when selling your home, essentially letting you buy or sell a home from your phone.

Over the past 5 years, OPEN stock is down over 70%. With this in mind, some investors might be contemplating buying the dip on this once buzzy tech stock. Here are my thoughts on why you shouldn’t do that.

The State of America’s Housing Market

Opendoor’s business model is heavily dependent on the real estate market. When the market is booming, Opendoor will likely sell more houses and OPEN stock will soar. But, America’s real estate market probably won’t boom anytime soon. Plus, there’s the fact that the National Association of Realtors just abolished commission fees. First, let’s talk about the housing market.

 

Over the past year or so, the Federal Reserve has raised interest rates at the fastest pace in decades. For home buyers, this has resulted in dramatically higher mortgage rates. In 2021, the average mortgage rate was roughly 3.% But, in 2024, the average rate is now hovering around 7%. In other words, it’s more than twice as expensive to buy a home now than it was just two years ago. This, among other factors, is causing a slowdown in home buying.

 

According to the National Association of Realtors, the number of existing home sales has been on a downward trend for most of last year (until spiking last February). I predict that this trend will continue for the foreseeable future, which will likely be a major headwind for OPEN stock.

 

The general consensus among real estate experts is that many home buyers are locked down by “golden handcuffs.” This means that tons of people secured 3-4% mortgages during the early 2020s. Now, these homeowners have no incentive to move again since they would be taking on a new mortgage that’s closer to 6-8%. The result is a stagnant real estate market, with a large percentage of people who simply have no incentive to move. Again, this is bad news for OPEN stock, which makes money by helping people buy and sell homes.

 

On top of that, America’s real estate market was recently dealt another massive curve-ball.

The NAR’s Recent Decision

The National Association of Realtors (NAR) recently agreed to settle an antitrust class action lawsuit for $1.8 billion. As part of this ruling, the NAR will eliminate rules on commissions. This ruling will make it easier for buyers to negotiate fees with their own agents or use no agents at all – essentially ending the 6% standard commission that agents previously earned.

 

It’s a bit unclear how the NAR’s settlement will impact the real estate industry. For example, the house-selling platform, Zillow (Nasdaq: Z) has highlighted the following concern:

 

“If agent commissions are meaningfully impacted, it could reduce the marketing budgets of real estate partners or reduce the number of real estate partners participating in the industry, which could adversely affect our financial condition and results of operations.”

Carrie Wheeler, Opendoor CEO, posted a blog with her thoughts about the NAR decision. She honestly didn’t say too much on how this will impact their business. Instead, she mainly stated that Opendoor stands by the rule change because it benefits consumers – which Opendoor is in favor of. Reading through the corporate speak, I interpret this as an admission that the NAR’s decision won’t materially benefit Opendoor. If Opendoor was confident that no more agent commissions would benefit them then they’d be shouting it from the mountaintop – not making vague statements about how it benefits the consumer.

 

I personally think that the reduction of agent commissions will be a net negative for Opendoor. One of Opendoor’s value propositions is that you can mitigate fees associated with going through the traditional home-selling process. If agent fees get reduced over the coming years then it will make Opendoor less attractive to use.

OPEN Stock: Last 3 Quarters

In addition to these industry headwinds, there’s also the fact that Opendoor’s last few quarters have been pretty awful:

 

• • • Revenue: $870 million (-70% annually)
    • Net income: $-91 million (+77% annually)

• • • Revenue: $980 million (-70% annually)
    • Net income: $-106 million (+88% annually)

• • Revenue: $1.98 billion (-52% annually)
  • Net income: $23 million (+142% annually)

 

So, right away we can see a few things. Opendoor’s revenue has cratered from $1.98 billion last June to just $870 million in December. Opendoor is also having trouble consistently turning a profit. On the other hand, Opendoor’s annual percentage increases in net income look impressive at face value. 

 

However, these increases are a bit misleading because the company lost $1.35 billion last year. When you lose over a billion dollars in one year, losing just a few million the next year looks like a massive win by comparison the next year. It’s like making $1 in Year 1, $2 in Year 2, and then reporting a 100% increase in revenue. It’s technically true. But, you still only made $2.

 

So, what’s the final verdict for OPEN stock?

Should You Buy OPEN Stock?

I personally like what Opendoor is doing as a company. There’s a massive need for more convenience and transparency in the real estate market, which is a big part of Opendoor’s mission. The company has also done a great job weathering a once-in-a-lifetime pandemic and economic environment. It’s honestly impressive that the company is still standing despite the turbulence of the last few years.

 

But, with that said, I don’t think OPEN stock is going to rally anytime soon. This really doesn’t have much to do with the company itself. It’s the stagnation of America’s real estate market. Factors like drastically higher interest rates, a slowdown in buying, and a NAR decision that will have untold impacts on the industry all pose massive headwinds for Opendoor over the coming years. In my opinion, these issues will hold Opendoor back, which means that OPEN stock will struggle.

 

I hope that you’ve found this article valuable when it comes to learning why you should stay far away from OPEN stock. If you’re interested in reading more, please subscribe below to get alerted of new articles.

 

Disclaimer: This article is for general informational and educational purposes only. It should not be construed as financial advice as the author, Ted Stavetski, is not a financial advisor. Ted also does not own shares of Open Stock.