Suffice it to say that 2022 is a tough year to be a mortgage origination specialist like Rocket Companies (NYSE:RKT). Frankly, RKT stock has behaved like a rocket that ran out of fuel.
That’s because high mortgage rates have deterred home-buying activity. This situation won’t likely resolve anytime soon as the U.S. Federal Reserve, or “Fed,” isn’t signaling a near-term letup in monetary policy tightening.
It’s understandable if value hunters have their eye on Rocket Companies. After all, this name might pop up on your stock screener since the company’s shares are trading near their 52-week low.
However, sometimes there’s a valid reason for a stock-price slump. So, before going on a bottom-fishing expedition, consider the circumstances that are making it difficult for Rocket Companies to thrive, and even to survive.
What’s Happening with RKT Stock?
Never forget that just because a stock has gone down a lot, this doesn’t mean it can’t go lower. After all, the only real floor price for stocks is zero.
RKT stock is an unfortunate example here, as it has declined from approximately $15 at the beginning of 2022 to less than $7 recently. Moreover, the shares once traded at $28 apiece in 2020.
One might argue that the entire stock market is under pressure now, but some segments of the economy are more recession-proof than others. Just think about the financial crisis of 2008 to 2009. During that time, real estate was among the most notoriously vulnerable sectors.
A similar scenario seems to be playing out in 2022 and, likely, into 2023. Thus, it was almost inevitable that InvestorPlace contributor Thomas Yeung would select RKT as a stock that’s particularly vulnerable to a possible housing market crash.
The Fed Isn’t a Friend to Rocket Companies
When Federal Reserve Chairman Jerome Powell made hawkish comments at 2022’s Jackson Hole Symposium speech, this was a signal to get out of any investment exposed to the U.S. real estate market.
JPMorgan Chase analysts then sent out their own signal with a prompt downgrade of Rocket Companies.
Specifically, the analysts downgraded RKT stock from “overweight” to “neutral.” Moreover, they envisioned a “scenario where mortgage rates remain higher for longer.”
Even Rocket Companies CEO Jay Farner has basically admitted that this is a tough time to be a mortgage lender.
“It can be painful … some companies are closing their doors, others are shutting down divisions of their companies. Others are doing layoffs,” Farner observed.
Making matters worse for Rocket Companies, the 30-year fixed mortgage interest rate recently hit 6.66%. Furthermore, the Mortgage Bankers Association recently reported that mortgage application volume is down 37% year-over-year.
What You Can Do Now
Will the Federal Reserve stop raising interest rates anytime soon? There’s scant evidence to believe so. Like it or not, the U.S. real estate market is likely to remain under pressure for a while.
This doesn’t bode well for Rocket Companies, which can’t thrive if people aren’t taking on new home loans. Hence, the JPMorgan Chase analysts were right to downgrade RKT stock, and investors would be wise to just avoid it.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.