Industry Overview - The Zacks Mortgage & Related Services industry is facing challenges due to mortgage rate volatility and macroeconomic factors, leading to a tightening purchase market and declining refinancing volumes [1][5] - The industry consists of providers of mortgage-related loans, refinancing, and loan-servicing, with non-banks gaining market share as banks retreat due to higher compliance and capital requirements [3] Current Trends - High mortgage rates have kept homebuyers sidelined, with the 30-year fixed rate remaining between 6% and 7% for over two years, affecting mortgage demand and origination [4] - Mortgage rates are expected to remain elevated due to strong U.S. economic fundamentals, leading to a negative trend in mortgage originations and refinancing activities [5] - The competitive landscape is intensifying, with forecasts indicating an increase in U.S. single-family mortgage debt outstanding, driven by house price appreciation, but tighter margins may challenge profitability for many originators [6] Servicing Segment Insights - The servicing segment is expected to provide support as companies face declines in gain-on-sale margins and lower loan origination volumes, with slow prepayment speeds creating tailwinds for mortgage service rights (MSR) [7] - The U.S. single-family mortgage debt outstanding is projected to reach 14.7 trillion by the end of 2025, presenting significant growth opportunities in servicing portfolios [7] Industry Performance - The Zacks Mortgage & Related Services industry currently holds a Zacks Industry Rank of 141, placing it in the bottom 43% of over 249 Zacks industries, indicating bleak near-term prospects [8][9] - The industry has underperformed the broader Zacks Finance sector and the S&P 500, gaining 13.8% over the past year compared to 28.8% and 25.2% for the sector and index, respectively [11] Valuation Metrics - The industry trades at a price-to-book (P/B) ratio of 4.77X, compared to the S&P 500's 8.89X, with historical trading ranges showing a high of 11.62X and a low of 1.18X over the past five years [13] - The Zacks Finance sector's trailing 12-month P/B ratio is 4.16X, indicating that the mortgage and related services industry is trading at a premium compared to its broader sector [15] Company Highlights - **PennyMac Financial Services, Inc. (PFSI)**: Focuses on mortgage origination and servicing, with a projected earnings estimate of 14.02 per share for 2025, reflecting a 21.7% increase year-over-year [19] - Lending Tree, Inc. (TREE): Operates an online marketplace and is diversifying its offerings, with a 2025 earnings estimate of 2.67 per share for 2025 [28]
3 Mortgage & Related Services Stocks to Watch Despite Industry Woes