The Federal Reserve Just Delivered Spectacular News for This Under-the-Radar Real Estate Stock

The U.S. Federal Reserve aggressively increased interest rates to a 20-year high in 2023, to fend off a surge in the rate of inflation. Consumers have since struggled under the weight of higher mortgage costs and less borrowing power, which has crippled the real estate market. In fact, U.S. existing home sales are currently hovering near a five-year low.

Fortunately, the Fed is in the process of reversing its ultra-tight monetary policy. The central bank cut interest rates three times at the end of 2024, and it delivered its third cut of 2025 earlier this month. Its latest forecast points to further cuts in 2026, but it will take time for all of these policy adjustments to work their way through the economy.

Douglas Elliman (NYSE: DOUG) is one of America's largest residential real estate brokerage companies, so the sluggish housing market has been a headwind for its business. However, its stock is trading at an attractive valuation right now, so this could be a great opportunity for investors to buy with interest rates trending lower.

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A leader in the luxury real estate market

Douglas Elliman currently employs 6,600 agents in 113 offices across the U.S., with a focus on high-end luxury markets in New York, Texas, California, Florida, and more. The company was founded in 1911, so it has more than a century worth of experience when it comes to navigating housing market downturns.

Despite challenging conditions, Douglas Elliman sold $30.1 billion worth of real estate during the first three quarters of 2025 (ended Sept. 30), so it will almost certainly surpass its 2024 sales total of $36.1 billion by the time this year is over.

As I mentioned earlier, U.S. existing home sales are near a five-year low. Plus, according to Redfin, there were 528,769 more sellers than buyers during October, which was a record high. It's hard for brokers to deliver sales in this environment, especially at favorable prices, so Douglas Elliman is doing exceptionally well given the circumstances.

US Existing Home Sales data by YCharts

As the positive effects of interest rate cuts flow through the economy, buyers should start to return to the market. The Fed's latest quarterly Summary of Economic Projections report, which was issued on Dec. 10, showed that the majority of Federal Open Market Committee (FOMC) members are in favor of even lower interest rates in 2026. That's good news for would-be homebuyers, so brokerage firms like Douglas Elliman should also reap the benefits.

Growing revenue in tough conditions

On the back of its higher sales, Douglas Elliman's revenue grew by 5% year over year to $787.6 million in the first three quarters of 2025. The company also carefully managed its costs during the period, resulting in $2.9 million in adjusted earnings before interest, tax, depreciation, and amortization (EBITDA). That was a positive swing from the $12.4 million adjusted EBITDA loss it generated in the year-ago period.

In October, Douglas Elliman also announced the sale of its property management division, using the proceeds to eliminate its outstanding $50 million convertible loan. The company is now debt-free, with $126.5 million in cash on hand, which it can invest in its business when the housing market rebounds.

Douglas Elliman stock looks cheap compared to its rivals

Douglas Elliman's price-to-sales (P/S) ratio peaked at 0.8 during the last housing boom in 2021, but its stock has since fallen out of favor among investors. Based on the company's trailing-12-month revenue of $1.03 billion and its market capitalization of $223 million, Douglas Elliman stock now trades at a P/S ratio of just 0.2.

If the real estate market bounces back in 2026 and drives an acceleration in Douglas Elliman's revenue growth, I think its P/S ratio could start trending higher. I'm not suggesting it will reach 0.8 again, but if it did, investors would earn a fourfold return from here.

The comparables also suggest a higher valuation might be in the cards. Compass is America's largest residential real estate brokerage company, so it's one of Douglas Elliman's biggest rivals, and its stock is trading at a P/S of 0.9.

COMP PS Ratio data by YCharts

Douglas Elliman stock is up 47% so far in 2025, so it's crushing the S&P 500 index which is up just 16%. Considering it still looks cheap, I think it could be poised for another big year in 2026, especially as the positive effects of lower interest rates feed through to the housing market.

Anthony Di Pizio has positions in Douglas Elliman. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.