Rocket Companies (RKT) shares fell roughly 6% to $13.09 late Wednesday, hovering near the session low on heavy volume of over 36 million shares. The decline came as the Federal Reserve held its benchmark interest rate steady at 3.50%-3.75% and reiterated that inflation remains above its 2% target, keeping pressure on rate-sensitive housing stocks.
The central bank's statement offered no clear signal of imminent relief for mortgage rates, and Reuters reported that Fed projections indicate nine officials expect another rate increase before year-end. This outlook has weighed on mortgage lenders, as higher borrowing costs typically slow home purchases and refinancing activity.
Downgrade Adds to Headwinds
BTIG analyst Douglas Harter downgraded Rocket to Neutral from Buy on Tuesday, according to Benzinga. The firm noted that Rocket's current valuation already reflects much of the platform premium. The stock closed Monday at $13.91 before the downgrade was announced.
Rocket was not alone in the sell-off. UWM Holdings (UWMC) lost about 6.6%, and loanDepot (LDI) fell roughly 6.1%, as mortgage lenders broadly retreated in response to the Fed's message.
Mortgage Rates and Affordability
While mortgage rates edged down slightly, the national average for a 30-year fixed loan stood at 6.53% on Wednesday, according to Bankrate data cited by WSJ Buy Side. Payments remain steep for most buyers, and affordability continues to be a drag on the housing market.
Pending home sales rose 3.8% in May to a six-month high, Reuters reported, but higher mortgage rates and limited inventory still constrain the market. "More supply is needed to help moderate home price growth," said Lawrence Yun, chief economist at the National Association of Realtors.
Rocket's Recent Performance and Strategy
Rocket's first-quarter results provided some support for bulls. The company reported total revenue of $2.94 billion, GAAP net income of $297 million, and adjusted EBITDA of $738 million. Its servicing portfolio reached $2.1 trillion, covering 9.4 million loans as of March 31.
CEO Varun Krishna, speaking at a J.P. Morgan conference in May, emphasized that Rocket is not simply waiting for rates to drop. He noted that 70% of the company's revenue is now "less rate sensitive" and described the servicing business as providing annuity-like income in the current higher-rate environment.
Rocket also recently priced $1.5 billion in senior notes due 2031 and 2034, up from an earlier plan of $1.2 billion. The company said it will use the proceeds to repay Rocket Mortgage notes maturing in 2026 and 2028, along with other debt.
Outlook
The risk for Rocket is clear: if inflation does not cool and the Fed hints at another rate hike, mortgage rates could remain elevated, keeping application volumes sluggish and delaying potential gains from Rocket's partnerships with Redfin and Mr. Cooper. Conversely, if rates decline more quickly, the stock could appear undervalued in short order.
