REA Group (ASX: REA) shares have been hotly covered over the last 12 months.
The online real estate advertising company was heavily impacted by fears about AI's impact on its core business.
A key concern was that AI assistants could become the primary way people search for property, reducing traffic to REA Group's platforms, weakening its network effects and potentially putting pressure on its advertising and listing revenues.
This sent its stock price plummeting 33% over the last year.
However, in the last few months, it has shown signs of recovery.
Many brokers and experts were tipping it for a strong rebound.
However, a new report from Bell Potter suggests the current share price weakness could persist for the long term.
Here's what the broker had to say.
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REA shares are not yet at the bottom of the cycle
Bell Potter said in a new report that it had examined historical earnings and valuation performance against a further deterioration in REA's current operating environment.
There are several key drivers that have changed its outlook on REA Group shares:
- Rising near-term RBA cash rate forecast driving softening in demand for lending
- Recent budget measures adversely impacting investment in property as an asset class, largely in the investor book, partially offset by owner-occupied
- Both factors, combining to negatively impact average national dwelling values and listing volumes, more than offset the buy yield for REA
- REA's history of EPS declines in a falling 12-month average dwelling price environment.
Recent budget measures undertaken by the Aus Gov. to adjust capital flows and housing affordability have driven the expectation for a decline in national avg. house prices, coinciding against a backdrop of an additional forecast rate hike (+20-25bps) and subsequent softening in demand via lending origination value.
The two previous instances of YoY avg. national dwelling price declines (FY19, FY23) saw significant decreases in REA listings (-8%, -12%), driving Resi segment revenue and Group EPS (-9%, -8%) declines on half-yearly bases. Melbourne and Sydney avg. house prices typically lead the housing cycle and are both approaching YoY declines as of May '26.
From a buy to a sell
In simple terms, Bell Potter thinks the housing market is weakening, which could hurt REA's earnings more than investors currently expect.
REA (owner of REA Group and its property listing websites) makes a lot of money when homes are bought and sold because agents pay to advertise properties on its platform.
If fewer homes are listed for sale, REA earns less revenue.
The broker's FY26 outlook is largely unchanged. However, FY27 and FY28 earnings are expected to be substantially lower than Bell Potter previously thought.
Based on this guidance, Bell Potter has changed its rating on REA Group shares to a sell (previously buy).
The broker also updated its 12-month price target to $137 (previously $217).
From last week's closing price of $158.81, this indicates a further downside of almost 14%.
