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Mortgage market losing heat

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As the housing market continues to heat up across the U.S., lenders prepare for the eventual cooldown of the mortgage demand. Brian Sozzi, Julie Hyman, and Myles Udland take an in-depth look into the factors contributing to the mortgage cooldown.

Video Transcript

MYLES UDLAND: What has been happening in the housing market, and just as we all might go outside and talk to someone at the farmer's market in Julie's case or someone at a local restaurant about the troubles that they're having with their input costs, you literally cannot meet with anybody these days without them asking about your housing situation. Did you buy a house? Are you selling a house? I know people who have just sold a house and said, I'll just figure out where I live later because the bid that they were getting for their house was so attractive.

Brian Sozzi, though, you flagged a story for us on how this is not exactly helping the mortgage market to the extent you would think. And we've seen a number of mortgage companies come public. And those stocks have been under some pretty serious pressure.

BRIAN SOZZI: Yeah, a good top of the fold story this morning here, Myles and Julie, from the Wall Street Journal looking at the competitive pressures in the mortgage industry and also, most notably, in the wholesale mortgage where UWM is the primary player here. But what is essentially happening is a lot more competition for business. And you're seeing a lot of the mortgage players, Rocket Mortgage, UWM, are going to battle here, trying to get more customers in a rising rate environment.

And Rocket noting last week that their gain on sale margins-- it's a key metric-- essentially means how much money they're making per mortgage-- that is expected to decline in the second quarter. That caught the market completely off guard. Rocket shares got hammered last week. You see UWM shares trading at a record low. Newly public company under pressure there. They report earnings after the close here.

But I think ultimately, this reminds investors you have to pick housing plays a lot more carefully this year than you did last year. Last year, everything worked. Mortgage originators worked. Rocket was a hot stock. UWM was a hot IPO. This year, maybe it's just a Home Depot. Maybe it's a Lowe's. Maybe it's a Stanley Black & Decker because people are still going to be inside their homes redoing things, but while the mortgage brokers feel a little more pressure because it's so competitive out there.

JULIE HYMAN: Yeah, I mean, when you have rates this low, and when you have such a hot buyer's market-- so many people buying homes, it makes sense that you would have this competition here in that fall in originations, but also, a fall in refinancing. So there's this sort of rush to snap up the market while it's hot. But obviously, it's affecting the margins. And Myles, I know you've been watching the prices of some of these guys. You know, when you come public through a SPAC and then you fall below $10, it's painful.

MYLES UDLAND: Yeah, just pulling up the UWM ticker here, 670 right now, so-- and then, you know, 668 on Home Point. Rocket, 1748. I want to say Rocket-- I want to say their IPO traded at 21 first day, something in that range. So slightly underwater there for those initial trades. And, you know, look, I think having gone through the mortgage process, everyone says, it would be great if this was simpler.

But there's a lot of barriers between here and there. And, you know, I think the other side of that housing market story, guys, is, I'm not sure the mortgage market is quite as attractive from a rates perspective as maybe it has been assumed, right? I mean, you know, the 10-year went up 75 basis points in a couple of weeks. And that's certainly put pressure on affordability and it put pressure on the refi market, which is really where a lot of this stuff gets done and where a lot of the interest is generated. But we'll leave the very detailed mortgage conversation for another day here on Yahoo Fi--