The REA Group Ltd (ASX: REA) share price has surged 8.70% in April to $153.72 at the time of writing. This follows its shares falling almost 20% between early February and mid-March to a 4-month low of $131.00.
Why is the REA share price pushing higher?
The Australian residential property market is booming
Whether it’s residential property listings, housing prices, or clearance rates — the property market is on fire by every metric.
A booming property market will likely prop up the key performance metrics for the REA group. This includes residential listings and website and app visits. An improvement in these key metrics would ultimately trickle down to higher revenues and profits.
An article from Domain Holdings Australia Ltd (ASX: DHG) highlighted a week in March where more than 1,000 properties were up for auction in both Sydney and Melbourne. The biggest auction day for both cities in three years. Both cities exceeded expectations with a preliminary clearance rate of 88 per cent and 81 per cent respectively.
CoreLogic’s monthly home value index for Sydney, Melbourne, Brisbane, Adelaide, and Perth rose 2.83% in March, the biggest monthly increase since October 1988.
While buyer demand and house prices might be surging, listing volumes have been relatively flat. CoreLogic’s March highlights note that “new listings volumes are now outpacing 2020 levels across 6 of the 8 capital city markets, however total stock on market is only higher across Melbourne”. Nonetheless, CoreLogic’s commentary still highlights the year-on-year improvement listing figures are experiencing, which is good news for the REA business.
REA eyes mortgage broking
There is a general consensus across big brokers such as Credit Suisse, Ord Minnett and UBS. Ultimately, the acquisition will be immediately EPS accretive with potential upside in both revenues and cost benefits. However, its contributions will be small relative to the size of REA. Some benefits that are realised as a result of owning a mortgage broking business include negotiating better rates with lenders and generating leads from REA to Mortgage Choice.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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