The real estate market is benefiting from anticipation that the Federal Reserve may finally start cutting interest rates now that inflation is easing.
The average contract interest rate for a 30-year fixed-rate mortgage with conforming loan balances decreased by 13 basis points to 6.87% for the week ending July 12, about 7% down from the week before, the Mortgage Bankers Association reported, according to Yahoo! Finance.
"This decline represents the most significant drop in borrowing costs in around four months and the lowest rate since early March," Piero Cingari wrote.
The 30-year fixed-rate mortgage hit a year-high 7.22% in May, Forbes Advisor reported. The Fed cuts could come soon, according to The Associated Press, as Consumer Price Index (CPI) numbers showed that inflation cooled for the third-straight month in June, "a sign that the worst price spike in four decades is steadily fading and may soon usher in interest rate cuts by the Federal Reserve."
The decline in mortgage rates was largely due to those expectations and the fall in 30-year Treasury yields, a key indicator for long-term mortgage rates, Cingari wrote. Those yields decreased by about 30 basis points month-to-date to 4.37%.
"This decline (in mortgage rates) represents the most significant drop in borrowing costs in around four months and the lowest rate since early March," he wrote.
This has had an effect on demand, with applications for new mortgages and refinancing of existing mortgages rising significantly, the article said.
Rates Could Be Much Worse
Mortgage applications in the U.S. jumped by 3.9% in the third week of July, recovering from declines in the previous two weeks to achieve the sharpest increase in a month, according to the Mortgage Bankers Association, Yahoo! Finance noted. Refinancing applications, which are particularly sensitive to weekly rate changes, increased by 15% from the previous week, reaching their highest level in two years.
However, rates still remained high, noted Vince Golle, writing for Bloomberg on July 24.
"While mortgage rates remain below 7%, they’re still twice as high as they were at the end of 2021," he wrote. "Combined with elevated home prices, many potential homebuyers have been shuffled to the sidelines, evidenced by waning sales of previously owned houses."
According to the article, a National Association of Realtors measure of homebuyer affordability declined for a fourth straight month in May and stood at one of its lowest levels since 1989.
But Glen Luke Flanagan pointed out in an article for Fortune that when it comes to historical data, rates could be worse.
"If you think rates between 6% and 8% today are scary, consider September through November of 1981, which saw the average rate hovering between 18% and 19%, according to FRED (the Federal Reserve Economic Data database)," he wrote.
Rate Relief Won't Come Overnight
What will a sustained lower fixed rate depend on? Several factors, including upcoming inflation and labor data, wrote Katherine Watt for CNET Money on July 23.
"One thing is for sure: Homebuyers won’t see lower mortgages overnight, and a return to the 2-3% mortgage rates from just a few years ago is unlikely," Watt wrote.
More resale inventory has entered the market, putting some downward pressure on the pace of home price growth, noted Robin Rothstein for Forbes Advisor on July 22.
But "experts say the housing market will only see renewed momentum once mortgage rates drop enough to ease buyer affordability obstacles and incentivize homeowners locked in at low rates to move," she wrote.
Several mortgage companies can help prospective buyers into the homes of their dreams in this quickly changing market, including these three publicly traded ones and one private one that is making the process easier for younger homebuyers.
Rocket Companies Inc.
Rocket Companies Inc. (RKT:NYSE) has been the top mortgage lender by number of originations for years, according to Motley Fool. A recent article by Hal Bundrick for Yahoo! Finance called it the "OG" (original gangster) of the online mortgage industry.
Streetwise Ownership Overview*"It literally changed the way borrowers thought about how to get a home loan," Bundrick wrote.
In 2022, the Detroit-based lender originated more than 464,000 mortgages worth $127.6 billion, giving it a 5.5% share of the market by origination.
The company has been ranked number one in customer satisfaction in America by J.D. Power for at least nine times. The rankings are based on client feedback by the independent research firm. It also ranked at the top of the listings for digital channels, being easy to do business with, keeping clients informed and educated, and resolving problems or questions.
Nerd Wallet currently has a 4 out of 5 score for Rocket Mortgage, saying it "stands out as the nation's No. 1 FHA lender, helping borrowers with limited down payment funds, but all home buyers and refinancers can take advantage of the lender's convenient website and app to both apply for and manage their loans."
According to TipRanks, out of nine analysts rating the stock in the last three months, five rated it Hold and four rated it Sell, with an average price target of US$12.18 per share.
According to the company, it had an adjusted revenue of US$1.2 billion, an adjust EBITDA of US$174 million, a 96% client retention rate, and US$8.9 billion total liquidity as of the end of the first quarter of 2024. Its next earnings are expected Aug. 1.
Reuters reported that management and insiders own 6.88% of the company, and institutions own 73.77%. The rest is retail.
Top shareholders include Fidelity Management & Research Co. with 8.76%, The Vanguard Group Inc. with 8.2%, Boston Partners with 6.73%, JP Morgan Asset Management with 5.81%, and Fidelity Investments Canada ULC with 4.97%.
It has 1.988 billion shares outstanding with 128.6 million of them free float traded shares. Its market cap is US$29.93 billion, and it trades in a 52-week range of US$15.88 and US$7.17.
Loan Depot Inc.
Ranking third on Motley Fool's list for home loan originations is Loan Depot Inc. (LDI:NYSE)., with more than 156,000 new loans in 2023 for US$52.53 million.
The company's first quarter 2024 financial results released in May showed revenue increasing US$15 million or 7% to US$223 million.
The company was hit by a cyberattack earlier this year that affected 16.9 million customers, affecting its expenses for the quarter. The company noted it incurred US$15 million in net charges directly related to the attack, but the adjusted net loss for the quarter decreased 35% to US$38 million.
In June, the company's President and Chief Executive Officer Frank Martell earned Inman's 2024 "Best of Finance" award for the second year in a row. Inman is a news source that covers the industry.
In a research note on June 16, Price Target Research gave the stock its highest rating, an "A."
"LDI's future returns on capital are forecasted to be in line with the cost of capital," the firm said. "Accordingly, (although) the company is expected to continue to be value creation neutral, Loan Depot has a current value trend rating of A (highest rating)."
The company also has been noted for its attention to Hispanic and non-white mortgage applicants. In 2022, the company placed 37 agents on the National Association of Hispanic Real Estate Professionals list, the highest number of any company.
"We continue to advance the pillars of our Vision 2025 plan by serving today's increasingly diverse community of first-time homebuyers and creating new ways to develop a lifecycle relationship with our customers," said Martell.
According to Reuters, 20.16% of Loan Depot shares are held by management and insiders. CIO and Head Economist Jeff DerGuarahian has 7.33%, and Jeff Walsh has 4.88%.
About 33% is with institutional investors. Cannell Capital LLC has 5.79%, The Vangaurd Group Inc. has 5.22%, Parthenon Capital Partners has 4.86%, Brandywine Global Investment Management has 3.67%, and Knightsbridge Wealth Management has 3.35%.
The rest is in retail.
Loan Depot has a market cap of US$658.5 million and more than 324 million shares outstanding. It trades in a 52-week range of US$1.14 and US$3.71.
Wells Fargo & Co.
Wells Fargo & Co. (WFC:NYSE) is the fourth largest mortgage lender according to originations, Motley Fool said, with 142,769 loans last year for US$79 million.
The bank offers "a variety of low-down-payment mortgage options and features like down payment assistance to help first-time and low-income borrowers get into a home," according to Business Insider. "Overall, Wells Fargo is a very affordable lender for first-time homebuyers. But the lender ranks extremely low in trustworthiness."
For those with thin or imperfect credit, Wells Fargo's "Dream. Plan. Home. Mortgage." program has more flexible credit standards and was created for people who are at or below 80% of the area median income. It allows down payments of just 3%, Business Insider noted.
The company released its earnings for the second quarter on July 12, including a net income of US$4.9 billion and diluted earnings per common share of US$1.33, an 8-cent rise from US$1.25 in Q2 2023.
According to research report by Trefis on July 11, the company is the third-largest bank in the U.S. by assets and the largest by market capitalization. Trefis estimates a target price for the stock of US$63.73.
About 0.09% of the company is owned by insiders and management, according to Reuters. Institutions own about 78%. The rest, 21.91%, is retail.
Major shareholders include The Vanguard Group Inc. with 9.07%, BlackRock Institutional Trust Co. with 4.67%, Fidelity Management & Research Co. with 4.55%, State Street Global Advisors (US) with 4.21%, and Dodge & Cox with 3.3%.
It has 3.49 million shares outstanding with a market cap of US$210.68 billion, and trades in a 52-week range of US$62.55 and US$38.39.
Beeline Loans Inc.
Digital mortgage lender Beeline Loans Inc. believes it is a perfect place to start for younger applicants and those looking for an easier, streamlined process.
Its online portal and A.I.-powered chatbot connects with consumers and quickly evaluates their eligibility for loans.
It's "a radically new way to apply, like five steps in 8 minutes radical. Do it from the sofa even," the company said.
Beeline said this digital approach to conventional mortgage lending will increase engagement with young people who have been hesitant to buy homes in recent years.
The chatbot, named Bob, is available 24 hours a day and is capable of answering complex questions. Based on these conversations, Bob will provide the customer with a personalized quote. A representative of the company stated that the chatbot "poses highly personalized product-specific questions to generate a quote in real-time."
The company has expanded its offerings to offer better service for Hispanic customers, as well. A new version will instantly detect the language of the consumer and give faster more accurate answers. Colmena users will automatically be routed to a bilingual loan officer to guide them through the process.
"Colmena will feature tailored mortgage products that are culturally aligned to address the specific needs and preferences of Latino homebuyers, plus educational resources to promote homeownership and empower individuals and families to achieve their dreams of owning a home," said Miguel Vega, who is spearheading the initiative for the company.
Beeline offers a variety of options, including refinancing, to consumers through the digital platform. It has built its premise on making homeownership more accessible to a wider, more diverse market, making it an attractive prospect if mortgage rates continue to fall.
The company launched a proprietary front-end mortgage platform during Q3 of 2020 and closed 1,500 mortgages by the end of 2021, and 2024 is expected to be Beeline's strongest year.
Despite the timing — which included COVID-19, the highest percentage increase in rates in 25 years, war in Ukraine, and housing inventories and consumer confidence being near all-time lows — the company has gained market share against larger legacy lenders.
"While other mortgage lenders have been slumping, Beeline is gaining traction," wrote Guy Bennett in an article for Yahoo Finance.
Robinhood revolutionized the stock-buying industry by fractionalizing stocks. This allowed people who previously were excluded from the stock market to enter the industry and paved the way for those people who may have been excluded to get involved. Beeline is now doing for mortgages what Robinhood did for the stock market, and it's powered by AI.
Beeline Loans is a private company, and the company reports that its largest shareholder is founder Nick Liuzza. According to Beeline, it has invested US$40 million in the company. It reports that the Cavalry Investment Fund, Atalaya, and Ellington have made significant investments in the company.
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