Real estate brokerage Compass (COMP) and mortgage titan Rocket (RKT) are betting they have the solution to the housing market’s crisis.
“You have to attack the [home affordability] problem from multiple angles,” Rocket CEO Varun Krishna told Yahoo Finance’s Opening Bid. “Sellers represent inventory, and we have to unlock more inventory.”
That’s the aim of the three-year partnership with Compass, which seeks to neutralize the pain points of inventory scarcity and high transaction costs.
The deal works by funneling Compass’s “Private Exclusives” and “Coming Soon” properties directly on to the Redfin platform, owned by Rocket. In doing so, the companies claim they can unlock up to 500,000 new listings for a public that has spent years fighting over scraps.
Krishna says that listing on the platform “creates more inventory that’s based on seller choice, lowering that barrier to entry.” The move comes as younger generations feel the brunt of the pricing crisis.
According to a Redfin survey, 67% of Gen Z respondents said they struggle with housing payments, followed by 53% of millennials and Gen Xers, and just 36% of Baby Boomers.
While the narrative frames the tie-up as a consumer-first remedy, the mechanics of the deal are largely about market share. Investors have already started pricing in the potential.
Over the last year, shares of Rocket have shot up roughly 40%. Meanwhile, shares of Compass have climbed more modestly, up about 10% in that same timeframe.
Wall Street is already signaling its approval for this aggressive land grab. BTIG analyst Eric Hagen recently named Rocket his “favorite way to position for an acceleration in overall housing activity,” citing the company’s ability to leverage proprietary tech.
“We’re especially bullish around management’s guidance for the $500 million of guided synergies from the COOP merger to get realized 6-12 months ahead of schedule … now that it’s fully integrated onto a single tech platform,” he said.
Hagen also noted that Rocket’s retail/direct-to-consumer channel maintains the most stable margins in the industry, providing the “highest quality connectivity” to borrowers that will be essential for retaining clients if and when rates eventually fall. He suggested a 20% stock upside should rates lower.
Rocket is fresh off a solid fourth quarter. Revenue came in at $2.69 billion, up roughly 40% year over year and surpassing the $2.27 billion expected, per Bloomberg. Adjusted EPS came in at $0.11 a share, modestly above the Street’s $0.09 projection.