Inflation Surges: Is Opendoor Stock Heading for a Crash?

Inflation's relentless climb just threw another curveball—and Opendoor investors are sweating bullets.

Rising Costs, Sinking Confidence

Soaring prices hammer consumer purchasing power. Homebuyers hesitate. Sellers retreat. Opendoor’s iBuying model faces a brutal squeeze as mortgage rates spike and housing demand stutters.

Balance Sheet Blues

Holding inventory amid inflationary spirals? Risky business. Each property sitting idle bleeds value—while debt costs soar. One analyst quipped, 'It’s like watching a hedge fund bet against the Fed—with leverage.'

Market Realities Bite

Tech-driven disruption meets old-school economic cycles. Opendoor’s algorithms excel in bull markets but falter when macro winds shift. Now, the company must navigate a landscape where cheap capital vanished—and optimism’s in short supply.

Bottom line: Inflation isn’t just a headline—it’s a wrecking ball. And Opendoor’s sitting in the path.

Image source: Getty Images.

The root of Opendoor's struggles

Opendoor is trying to build an-like e-commerce model for the housing industry, where people can buy and sell homes online. The company buys homes, usually those in good condition or those that only need minor repairs, then resells them on its online marketplace. It sounds like a great idea, but the company hasn't been able to turn that into a sustainable business yet.

The profit margins are slim. Opendoor has to balance competitive offers for homes it buys with the need to resell those properties at a profitable price. Opendoor acquires homes with debt so that it can operate at a larger scale, but debt incurs interest expenses.

Therefore, the company's goal is high inventory turnover, quickly buying and reselling homes to spread the cost of its capital and business operations across as many transactions as possible. All of this is even harder when you consider that market conditions and interest rates can change. Rapid interest rate hikes caught Opendoor off guard a few years ago and incurred massive losses on the inventory it was stuck holding on to.

To put it kindly, Opendoor Technologies has not been a good investment thus far. The company went public via a SPAC merger in late 2020, and the stock has dropped over 90% from its all-time high.

What happens if inflation heats up, and how might that affect Opendoor?

The housing market is slow right now, and that's working against Opendoor.

High interest rates on mortgages are the primary culprit. Rates on 30-year mortgages are currently at 6.5%. Higher rates can make housing payments dramatically more expensive. For example, suppose you buy a home for $420,000 using a 5% down payment and a conventional 30-year mortgage. The difference in the monthly payment on a mortgage with a 5% rate versus a 7% rate is over $500.

The Federal Reserve (the Fed) controls the federal funds rate, the economy's benchmark rate at which banks lend to each other. It doesn't solely determine mortgage rates, but it does influence them. If inflation continues to rise, the Fed may be reluctant to lower rates or could even raise them to cool inflation down.

It WOULD be hard to see the housing market loosening up in that scenario, which would continue to make things difficult for Opendoor.

Should investors worry about Opendoor, or is the stock a buy?

Opendoor Technologies recently soared over 500% after a hedge fund manager posted about the stock on social media. Since then, the stock has cooled off some, but remains highly volatile. Adding to the uncertainty is the recent resignation of CEO Carrie Wheeler, who announced that she was stepping down from her position following the company's most recent earnings report.

So, where does that leave investors right now? For one thing, if inflation continues to rise, Opendoor and its investors should be concerned. Second, it would work against Opendoor if the Fed maintains a high federal funds rate. Beyond that, an already struggling company now lacks leadership at the helm. Perhaps change will be a good thing, but it's hard to give Opendoor the benefit of the doubt.

Despite the stock's recent rally, it's probably best to avoid Opendoor until there is a new CEO in place and the company shows at least two or three consecutive quarters of improved business performance. For now, it's unclear whether Opendoor can even keep its doors open over the long term.