today's surge in Opendoor's stock value
Shares of Opendoor Technologies (OPEN 1.36%) experienced a surge today, seemingly as a result of President-elect Trump proposing hedge fund manager Scott Bessent as the next Treasury secretary.
The news led to a decrease in Treasury yields, which positively impacts stocks like Opendoor, as Bessent is anticipated to be a responsible overseer of the economy. His expected actions to curb the deficit and manage the economy could help keep Opendoor's financial situation stable. Stocks sensitive to interest rates, such as Opendoor, witnessed a rise in value due to the news, with Opendoor shares closing the day up by 14.6%.
Is the real estate market making a comeback?
The 10-year Treasury yield dropped by 3.3% to 4.27% as investors responded to the Bessent nomination. This decrease signifies investors' faith in Bessent's ability to control inflation and bridge the budget deficit. Bessent previously suggested reducing the budget deficit from 6% to 3% by 2028.
Initially, Treasury yields climbed after Trump's election due to investor concerns over potential tariffs and larger deficits leading to higher inflation. However, Bessent's nomination seems to have allayed these fears.
A decrease in Treasury yields is beneficial for Opendoor as the company primarily makes profits from house-flipping, or purchasing and reselling single-family homes. The housing market, including Opendoor, has faced challenges due to high mortgage rates, so any decline in mortgage rates would benefit Opendoor.
What's the future of Opendoor?
Opendoor has faced challenges since it went public in 2020. Despite never turning a profit, the company's decision to persist with its "iBuying" model, even as competitors like Redfin and Zillow abandoned it, kept hope alive for the model's success, albeit with less competition.
However, Opendoor was left with excess inventory when the housing market slowed down. Post multiple rounds of layoffs, the company has managed to cut costs, reduce inventory, and is now rebuilding its inventory. Despite these efforts, Opendoor remains unprofitable.
A significant drop in mortgage rates and a recovery in existing home sales are likely required for Opendoor to record profits. Keep a close eye on interest rate trends as Opendoor's performance is expected to mirror them.
Investors looking to capitalize on potential economic stability might consider investing in companies like Opendoor, given its sensitivity to interest rates. As a result, the proposed actions of Scott Bessent, if elected as Treasury secretary, could potentially benefit Opendoor's financial situation.
Furthermore, with Bessent's emphasis on reducing the budget deficit, there might be a decrease in mortgage rates, which could positively impact Opendoor's house-flipping business, as lower mortgage rates often lead to increased demand for housing.
