Why Are Real-Estate Listing Sites Hot Right Now?

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Last week’s IPO of Trulia, an Internet real-estate listings site, was a smashing success for investors, as the stock traded up 41% to close at $24 per share, according to Marketwatch.

The price gives the company a price-earnings ratio of … wait, you can’t get a price-earnings ratio on a negative number, can you?

In truth, San Francisco-based Trulia has so far been profitless. And while its revenues of $29 million for the six months ending June 30 have nearly doubled from a year ago, the firm’s loss of $7.6 million for the first half of the year is nearly triple its loss of $2.6 million for the same period last year.

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The pattern is similar to that of another listings aggregator: Zillow, which IPO’d in July of last year, with a home-run 79% increase in stock price on its first day. When Zillow debuted on the Nasdaq Stock Exchange, it, too, was running at a loss, of $6.8 million dollars during the prior year. (The company has since turned a tiny profit.)

So why do investors love these stocks? In a world where Facebook stock has been pummeled (down some 39% from its IPO price in May, according to the San Francisco Chronicle) it’s probably not a love of all things social media. The housing market is not currently go-go either. Real estate fundamentals are warming — but only oh-so-slightly. The Federal Housing Price Index shows home prices up 3.0% in the second quarter from a year before, good news but hardly enough to offset the slump since 2006.

I think these stock jumps are instead an indication that investors expect that a strong real estate recovery — a return of robust demand in multiple property markets — is just around the corner. Call it wishful investing if you will — the same drive that has pushed the Dow Jones index of real estate investment trusts up 27% over the past twelve months.

And earlier this week, one more piece of data came in that may help to confirm that optimism. According to the National Association of Realtors, the volume of home sales, which is in many ways a better indicator of the health of the real estate industry than price, shot up in August to an annualized rate of 4.82 million. That still doesn’t break the benchmark of 5 million sales per year that industry insiders would like to see — for comparison, the rate during the boom was about 6 million sales per year — but it’s a healthy jump of 9.3% from a year ago.

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Over the past five years, the housing market has been crawling, not walking, towards success. But if the faith of the stock market in real-estate listing sites is reflective of anything, it’s that Wall Streeters think that maybe housing is ready to run sometime soon.

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