The Housing Market Is Slowing Down. Why Zillow Stock Is a Buy.

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Zillow’s Premier Agent business connects active home buyers with real estate agents.

Chris Goodney/Bloomberg

Real estate company Zillow Group ’s third-quarter results have upside potential based on recent housing data, a Jefferies analyst said Thursday, even as mortgage rates hit the highest level since 2008.

Analyst John Colantuoni reiterated his Buy rating on the stock and lifted his price target estimate to $50 from $48 earlier. His bullish take came in a week when the average mortgage rate on a 30-year fixed mortgage rate reached 5.89%, nearly double the rate at the beginning of the year. Rising rates preclude would-be home buyers from taking the plunge.

Seasonally adjusted purchase loan applications dropped for the fifth week in a row last week, underscoring that Americans have put a lid on their plans for buying homes.

But Colantuoni, who has had a Buy rating on Zillow since late 2020, has reasons for his bullish take. He thinks Zillow’s core premier agent business, which provides agents with digital tools to manage their business, will hold up better than expected even in a declining real estate market.

The recent dip in applications suggest the value of existing homes sold could see an 8% year-over-year decline in the third-quarter, he calculates. This contrasts with consensus among analysts for a 21% year-over-decline in the Premier Agent revenue, Colantuoni said.

“Estimates already incorporate the impact of a recent moderation in transactionvolume,” he said.

Zillow’s stock (ticker: Z) jumped nearly 6% to $37.27 on Thursday. The company will deliver its results for the third quarter on Nov. 1, according to FactSet.

Besides the Premier Agent analogy, Colantuoni reminded investors about Zillow’s dominant position in the market, allowing the company to take advantage of strong housing demand. “The pandemic is driving increased usage of real estate portals by consumers …and driving opportunities to enhance agent monetization,” he said.

Zillow recently announced a partnership with Opendoor that allows homeowners to request a cash offer. In that deal, it retains the right to offer ancillary services like home financing and introduce the homeowner to an agent, which could boost revenue further, the analyst said.

Of all the analysts tracking Zillow, 30% are bullish, 52% rate it as Hold and others as Sell.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com