Housing Market Bottoms Out Per JPMorgan's Initiation Of Redfin, Zillow

Last summer, Federal Reserve chair Jerome Powell laid out a plan to reset the U.S. housing market, which has been putting the squeeze on aspiring homeowners.

How? By increasing interest rates, and subsequently spiking mortgage rates.

While higher rates alone wouldn't solve the problem of limited inventory, they could theoretically rebalance the market by curbing the pandemic-fueled housing demand and allowing inventory to rise.

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And that's exactly what happened in the latter half of 2022. Sales of both new and existing homes plummeted, and U.S. home prices even saw a slight decline, marking the first such drop since 2012.

With that said, it seems like JPMorgan Chase JPM is calling the housing market bottom.

The Analyst: The investment branch of the New York-based banking giant initiated coverage on the leading online real estate platforms serving customers in the U.S.

For Zillow Group Inc ZG Z, JPMorgan provided an overweight rating and a $48 price target, while Redfin Corp RDFN received a neutral rating and an $8 price target.

The Takeaways: Zillow, with 220 million monthly unique users, is the most visited platform, while Redfin ranks third.

With a market size of over $2 trillion, JPMorgan said both Zillow and Redfin have a total addressable market of over $200 billion. The industry is fragmented and complex, making innovation and market share gains critical to growth.

The firm mentioned Zillow and Redfin are well-positioned to achieve these goals, saying the two companies could drive double-digit percentage growth with solid execution.

Despite headwinds in the form of affordability, rate volatility, and inflation, signs of stability in the macro environment have lifted Zillow and Redfin shares by approximately 22% and 76%, respectively, year-to-date.

However, real estate activities remain depressed, and year-to-date performance reflects this trend. JPMorgan expects the recovery to begin later in 2023, with revenue growth accelerating to a 12%-13% compound annual growth rate off the 2023 base.

Zillow's leadership as the most visited online real estate platform, solid margins, and share repurchase program make it best positioned to navigate short-term industry challenges, the analysts said.

Redfin, while a leader in online real estate, has a brokerage model that JPMorgan says makes it more challenging to navigate the current volatile environment. While risk-reward is balanced at current levels, Redfin could execute well and drive upside to expectations in a normal environment.

Read next: Warren Buffett May Think The Housing Market Has Bottomed - Berkshire's Bet On A Strong Recovery