Zillow (NASDAQ:Z) may see renewed investor attention following stronger-than-expected April housing data, with Jefferies analysts saying recent trends point to improving transaction growth in the second quarter, though risks tied to affordability and interest rates remain.
Jefferies said its analysis of April pending home sales suggests housing transaction values are tracking toward nearly 6% growth in the first quarter, reflecting a 400 basis point sequential acceleration and the strongest year-over-year increase since Q4 2024.
The firm said its projections are running ahead of Zillow’s own expectations for the housing market.
“Our Q2 estimate is also notably above Z’s outlook for the housing market to remain approximately flat year-over-year, potentially foreshadowing upside to consensus revenue,” the analysts wrote.
According to data from the National Association of Realtors, April pending home sales rose 3.3% year over year, compared with 1.8% growth in March. Existing home sales transaction value increased 2.8% year over year in April, while existing homes sold rose 1.4% and average sale prices increased 1.4%.
Jefferies estimates that Q2 transaction value could rise 5.8% year-over-year, driven by 1.5% price growth and 4.2% volume growth. That would compare with 1.7% growth in the first quarter.
The analysts also noted that Zillow’s residential revenue has historically outpaced broader transaction value growth.
“Even if Z outperforms gross transaction value growth of 5.8% by the low end of that range, residential would still grow 8.4% year-over-year, and represent 2% upside to consensus,” the note said.
Jefferies pointed to signs of improving housing demand despite elevated mortgage rates. The firm said mortgage applications have risen 21% year over year on average so far in the second quarter, compared with a 4% decline in March, which it said underscores “pent-up demand.”
At the same time, the analysts warned that limited inventory and elevated borrowing costs could weigh on the sustainability of the recovery.
“While the recent uptick in demand is encouraging, stagnant inventory and stubbornly high interest rates could jeopardize the recovery,” Jefferies wrote.
Inventory growth remained modest in April, with months of supply increasing 2.3% year over year and inventory rising 1.4%.
Jefferies cautioned that without faster inventory growth or stronger wage gains, affordability pressures could intensify.
“Higher prices combined with stubbornly high mortgage rates could hinder affordability, causing momentum for demand to fizzle in future periods,” the analysts wrote.
The note also highlighted improving rental market conditions as a potential positive for Zillow’s rental revenue business. Rental vacancy rates increased in April, which Jefferies said could encourage more property managers to advertise listings.
Despite the improving housing data, Jefferies said Zillow shares could remain range-bound in the near term due to legal uncertainty and broader macroeconomic concerns.
Shares of Zillow traded hands at $36, down about 47% in the year to date.