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Opendoor Technologies (OPEN) shares surged 10% higher in pre-market trading on Friday, following President Trump's announcement of a $200 billion plan for mortgage-bond purchases aimed at lowering mortgage rates. This move is expected to boost mortgage originations, helping to invigorate the housing market.

The gain followed Thursday's 5% increase, triggered by Trump's separate proposal to ban large institutional investors from purchasing single-family homes. Initially, investors feared Opendoor might be categorized alongside these institutions, causing an 11% drop the day before, but CEO Carrie Wheeler clarified that Opendoor is not an institutional buyer, exempting it from the ban and sparking the rebound.

Understanding Opendoor's Business Model

Opendoor operates as an iBuyer in the real estate sector, revolutionizing home transactions by offering instant cash offers to sellers. Founded in 2014, the company uses advanced algorithms and data analytics to evaluate properties quickly, purchase them outright, make necessary repairs, and resell them on the open market.

This model eliminates traditional hassles like showings, negotiations, and lengthy closings, appealing to sellers seeking speed and convenience. Revenue comes from service fees – typically 5% of the home's value – plus any profit from the resale.

In a sluggish housing market, Opendoor has faced various challenges, including inventory buildup and losses during high-interest-rate periods. The market had gotten so dismal that other iBuyers like Zillow (Z) seemingly abandoned the market altogether.
 

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However, Trump's bond purchase plan could supercharge Opendoor's operations. By injecting $200 billion into mortgage-backed securities, the initiative aims to reduce borrowing costs for homebuyers, potentially dropping 30-year fixed rates below 6%.

Lower rates historically spur demand: more buyers enter the market, accelerating home sales and reducing Opendoor's holding times for inventory. This efficiency lowers carrying costs like taxes and maintenance, improving margins.

Additionally, increased originations entail more refinancing and move-up buyers, expanding the pool of potential sellers who might turn to Opendoor for quick transactions. Unlike traditional realtors, Opendoor's tech-driven approach scales well in high-volume environments.

Analysts project that a 1% rate drop could boost U.S. home sales by 10% to 15%, directly benefiting Opendoor's flip-and-sell strategy. The company's recent pivot toward partnerships with agents and builders further positions it to capitalize on renewed activity.

Why the Bond Proposal Matters

Beyond the ban exemption, the bond plan addresses ongoing affordability issues. With home prices elevated and rates hovering around 6.5%, many buyers have remained sidelined. Trump's direct intervention could bypass slower Federal Reserve actions, providing immediate relief.

Bottom Line

The real estate market remains dicey, with inventory shortages and economic uncertainty continuing. The Federal Reserve, after its latest rate cut, shows reluctance – or at least division – on further reductions soon. That's why Trump's bond proposal could have a beneficial impact, effectively doing an end-run around the Fed to lower mortgage rates.

While risks like inflation or market volatility exist, the housing sector might see renewed buying activity, positioning Opendoor for growth. With Trump ready to name a new Fed chair when Jerome Powell's tenure ends in May, the tide may rapidly shift on making significant rate cuts, making the momentum behind Opendoor stock undeniable.

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