Major mortgage lenders are experiencing significant stock declines this week as US mortgage rates continue their upward trajectory. UWM Holdings (UWMC) fell to $1.17 on Wednesday, an 80% drop from its yearly high, bringing its market capitalization to $2.25 billion. Rocket Companies (RKT), the nation's largest mortgage lender, slipped to $11.30, down over 53% from its 2023 peak. Better Home & Finance (BETR) also hit a record low of $9.95, an 80% decline from its high.
Rising Mortgage Rates Pressure Housing Market
The sell-off in these stocks coincides with a sharp rise in mortgage rates. The average 30-year fixed mortgage rate reached 7.49% on Wednesday, the highest level in three years. Analysts predict rates could climb to 9% if current trends persist. This surge is driven by a rally in US Treasury yields, with the 10-year yield jumping to 5.313% and the five-year reaching 5.03%. The yield curve has also widened, reflecting investor concerns about the nation's fiscal health.
US public debt has soared to over $40.2 trillion, and there are no signs of congressional action to address the widening budget deficit. Additionally, major foreign holders of US debt, such as China and Japan, may reduce their holdings. China has already sold over $600 billion in US Treasuries over the past decade. Ray Dalio recently warned that these countries will likely exit their positions over time. Meanwhile, Treasury buybacks initiated by Scott Bessent have not stemmed the yield rise.
Inflation Remains Sticky
Inflation continues to run above the Federal Reserve's 2% target, with both headline and core CPI exceeding that level for the past five years. Rising crude oil and gas prices are adding to inflationary pressures, with Brent crude at $101.70 and West Texas Intermediate (WTI) at $90. This persistent inflation keeps upward pressure on yields and mortgage rates.
Impact on Mortgage Lenders
Higher mortgage rates directly affect these companies by reducing home affordability and dampening demand for new mortgages and refinancing. Many homeowners with low-rate mortgages are reluctant to sell and take on higher-rate loans, further reducing origination volumes. Despite these headwinds, some lenders have reported strong quarterly results, suggesting that the stock declines are driven more by future expectations than current performance.
Better Home & Finance reported a 28% increase in revenue to $54.7 million, with its net loss improving by 39% to $14 million. The company shifted its focus to purchase and home equity loans, keeping volumes stable. Rocket Companies saw revenue jump to $5.7 billion from $2.7 billion, and net income rose to $526 million from $229 million. UWM reported revenue of $888 million, up from $758 million in the same quarter last year.
Despite these positive earnings, investors remain concerned about the sustainability of mortgage demand in a high-rate environment. The combination of rising rates, elevated inflation, and fiscal uncertainty is likely to keep pressure on these stocks in the near term.
This article is for informational purposes only and does not constitute financial advice.
