What happened
Shares of Rocket Companies (RKT 1.23%), the parent company of Rocket Mortgage, one of the nation's biggest mortgage originators, took a dive last month as the housing market continued to weaken, mortgage rates rose, and the Federal Reserve said that interest rates would stay higher for longer, putting more pressure on real estate stocks.
While there was no company-specific news out on Rocket Companies, the macroeconomic-level announcements, including downbeat housing data and rising mortgage rates, were enough to sink the stock further, and shares lost 23% last month, according to data from S&P Global Market Intelligence.
As you can see from the chart, the stock fell steadily over the course of the month, with the sell-off accelerating after the Federal Reserve's interest rate decision.
So what
There were a number of negative housing data points that came out last month, weighing on Rocket stock. Since the company's business is primarily mortgage originations, it's highly sensitive to interest rates and demand for new mortgages. Rates on the 30-year fixed mortgage rose over much of the month, finishing at 7.31%.
Two factors in particular that seemed to drive Rocket stock lower were the Fed's forecast that interest rates would stay higher for longer, raising its forecast by half a percentage point for both 2024 and 2025, and an existing home sales report that showed August home sales fell 15.3% from a year ago. Total inventory was also down 14.1%, showing Americans' reluctance to sell their homes and give up their low mortgage rates.
Now what
Rocket Companies' recent results reflect the headwinds in the housing market as revenue fell 11% in the second quarter to $1.24 billion, and loan origination volume was down by more than a third to 22,330.
In the face of a downturn in the housing market, the company has been focused on cutting costs, and it's now targeting $150 million to $200 million on an annualized basis.
Those moves also seemed to help give profits a lift in the second quarter, as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) actually improved from a loss of $27 million in the quarter the year before to a profit of $18 million.
For the third quarter, the company expects revenue of $850 million to $1 billion, down 15% at the midpoint.
Rocket Companies should swing back to growth next year as comparisons get easier, but elevated mortgage rates are likely to remain a headwind on the business.
