![]() In 2023, the rapid increase of interest rates may finally come to a halt. This increases mortgage activity due to lower rates and helps to stabilize the housing market, allowing existing homeowners to remain in their homes or upgrade to a larger home, refinance to a lower rate, or purchase a new home with cheaper financing. When the overall economy is weak, the mortgage origination sector takes on an increased role in providing liquidity and stability to the housing market mostly because the Federal Reserve and other central banks will often increase the money supply, bringing down interest rates. This is reflected in these companies' earnings releases and stock prices. Not only has the refinance business nearly disappeared, but with mortgage rates topping 7%, purchase mortgage origination has hit multi-decade lows. The resulting spike in rates has caused an adverse reaction in housing and mortgage finance. The pace of this rate hike cycle is unmatched by any other period. Here’s a chart showing the speed and path of rate hikes in comparison to prior cycles. For better or worse, this creates tremendous cycles.Īs we have seen in the past year, this sector has taken a large beating as rates have moved up at an unprecedented speed. This is because the sector is highly sensitive to swings in interest rates. During times of economic turmoil, when most sectors of the economy falter and there is a general lack of confidence in the equity markets, the mortgage origination sector is often the first to see a glimmer of hope. Many of these companies are also trading significantly below their recent IPO price.Īs a whole, the mortgage origination sector is somewhat counter-cyclical in nature due to its unique position in the broader economy. ( IMH ) are all trading at the bottom of their 52-week range. ( AOMR ), and Impac Mortgage Holdings, Inc. ( LDI), Finance Of America Companies Inc. ![]() In 2023, investors should consider mortgage originators, especially after seeing these companies' stock prices plummet in 2022. ![]()
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