The housing market is as hot as ever. The mortgage market, though, is losing steam.
Homes are selling at a blistering pace unseen since before the financial crisis, pushing up home values in nearly every U.S. ZIP Code. Yet lenders are preparing for mortgage demand to cool in the coming months, the result of rising interest rates that make refinancing less attractive for a huge chunk of borrowers.
The anticipated decline in mortgage volume is setting off price wars across the industry. That is driving down profit margins and spooking the shareholders of mortgage firms that went public closer to the height of the lending boom.
Rocket Cos., the parent of Quicken Loans, said last week that it expects its gain-on-sale margin, a measure of how much lenders earn when they sell loans, to decline in the second quarter. The profit margin would be the company’s narrowest since before the mortgage boom. The forecast drove shares of several nonbank lenders to double-digit losses last week, analysts said.
“The message from all the companies that have reported financials publicly is that competition has increased significantly,” said Guy Cecala, chief executive of Inside Mortgage Finance.