2 Growth Stocks to Buy for the Real Estate Boom

A combination of years of extremely low interest rates and the pandemic-induced economic stimulus from the federal government have helped bring the US housing market to a boil.

It is estimated that with more than five million homes in the US, it cannot meet the demand of potential homebuyers, which means that many hopefuls are excluded from the market.

Fortunately for buyers and sellers, real estate technology companies have made buying a home cheaper and more convenient in recent years. Zillow group (NASDAQ: ZG)(NASDAQ: Z) now buys houses directly from sellers and saves them an otherwise costly and time-consuming sales process. It has also developed tools to help people sell homes with or without traditional realtors.

Digital real estate giant Red woman (NASDAQ: RDFN) recently boasted that to date it has saved consumers $ 1 billion in transaction fees. It did this by building a scale, hiring an army of in-house agents, and charging listing fees as low as 1% to 1.5%, compared to the industry standard of 2.5% to 3%.

The case for the Zillo Group

Zillow has succeeded in digitizing almost all areas of the residential real estate market. It has nine core brands under its roof, each of which covers a different part of the complex industry.

Image source: Getty Images

Direct purchasing is the largest contributor to sales and accounts for around 59% of total sales. If a homeowner is looking for a quick transaction without the hassle of a traditional sale – which can often take months – they can simply sell their home directly to Zillow. Simply enter the address on the website and wait one to three days for an offer. If the seller likes the price offered by the company, Zillow pays cash after the deal is closed.

Zillow sold 2,086 homes for a total of $ 772 million and bought 3,085 more in the second quarter. It paid an average of $ 348,766 per home (after cost) and made an average profit of $ 19,636 on sales.

For sellers who prefer the traditional route, Zillow can connect them with a local real estate agent or help them sell their home online without one, which means the seller would host their own open houses and save on commissions.

Metric	2nd quarter 2020	Q2 2021	change
revenue	$ 768.3 million	$ 1.3 billion	70%
Earnings per share	($ 0.38)	$ 0.04	N / A

DATA SOURCE: COMPANY INFORMATION.

While the overall sales growth has been incredibly strong, there is even greater underlying strength in certain segments. Premier Agent, which provides tools to real estate agents to help them grow their networks, grew 82% year over year. It accounted for over 26% of total sales and underscores Zillow’s truly comprehensive solution that even closes deals from independent operators.

Smaller segments like Zillow Closing Services (which provide property and fiduciary services) and Zillow Home Loans also grew strongly, up 1,073% and 68%, respectively. Although they only make up 4.7% of total sales, they could be important sources of growth in the future.

Zillow is expected to generate earnings per share of $ 1.04 in 2021, followed by 38% growth in 2022. At those rates, this stock makes an attractive long-term opportunity.

The case for Redfin

Redfin offers sellers a direct purchase service like Zillow’s, although it’s significantly smaller. This firm’s focus is on the traditional real estate agent model, but with a twist – enormous scope. His goal is to run a business that is big enough to generate cheaper commissions for customers and to use this advantage to gain ever larger market share.

Image source: Getty Images

In the second quarter, Redfin represented sellers in 1.18% of all real estate sold in the United States, and more than 48 million people use the app on average each month. The company also completed the acquisition of RentPath in April, making it one of the top online destinations for rent and purchase.

Metric	2nd quarter 2020	Q2 2021	growth
revenue	$ 213.6 million	$ 471.3 million	121%
Gross income	$ 46.0 million	$ 126.1 million	174%
Net loss per share	($ 0.08)	($ 0.29)	N / A

DATA SOURCE: COMPANY INFORMATION

The company reports sales in two categories – services and products. The former covers its brokerage business and reflects commissions on sales made by the real estate agents employed by Redfin and its partner network. Sales from this segment rose by over 111% compared to the previous year and accounted for 63% of sales.

Product sales are generated through the sale of homes that have been purchased directly from the company. It sold 292 properties in the second quarter for an average sale price of $ 570,930, and that segment managed to swing its gross margin – which was negative in the year-ago period – into positive territory, landing at 2.9%. As it sells and scales more units, that metric should continue to improve.

Analysts expect the company to post a loss of $ 0.69 per share this year, but an improvement should come in 2022 as it nears break even. Given rising residential demand and record prices, Redfin’s growing share of existing home sales should grow its revenue for the remainder of the year, and the company could even beat expectations.

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