3 Stocks to Buy From Prospering Mortgage & Related Services Industry

Core Viewpoint - The Zacks Mortgage & Related Services industry is poised to benefit from declining interest rates, which will enhance purchase originations and refinancing volumes, despite rising competition and pressure on sales margins [1][2]. Industry Overview - The Zacks Mortgage & Related Services industry includes providers of mortgage-related loans, refinancing, and loan-servicing facilities. Non-banks are gaining market share as banks retreat due to compliance and capital requirements [3]. - The industry is heavily influenced by Federal Reserve interest rates, which affect consumer mortgage applications and investment income from mortgage-backed securities [3]. Current Trends - The U.S. housing market is showing signs of favoring buyers, which is expected to positively impact mortgage originations and reduce operational challenges for originators [6]. - Mortgage rates have recently declined, with the average 30-year fixed-rate mortgage at 6.79% as of November 7, down from 7.50% a year ago, although rates have risen in recent weeks due to political and economic factors [4][5]. - Refinancing activities are on the rise, with a 48% increase in applications compared to the previous year, driven by lower mortgage rates [8]. Competitive Landscape - The competitive environment is intensifying, with many companies experiencing declines in gain-on-sale margins, which may challenge profitability [9]. - Despite the competitive pressures, the U.S. single-family mortgage debt is expected to grow due to house price appreciation [9]. Industry Performance - The Zacks Mortgage & Related Services industry has outperformed the broader Zacks Finance sector and the S&P 500, gaining 55.3% over the past year compared to 36.8% and 35.7% respectively [12]. - The industry currently trades at a price-to-book ratio of 4.62X, which is lower than the S&P 500's 8.68X, indicating a premium valuation compared to the broader finance sector [13][14]. Notable Companies - PennyMac Financial Services, Inc. (PFSI): Reported earnings of $3.49 per share, exceeding estimates, with a book value per share of$72.95. The company has a market cap of $5.44 billion and a Zacks Rank of 1 (Strong Buy) [16][17]. - **Lending Tree, Inc. (TREE)**: Achieved adjusted net income of 80 cents per share, with total revenues growing 68$260.8 million. The company has a market cap of $698.03 million and a Zacks Rank of 2 (Buy) [19]. - **Onity Group Inc. (ONIT)**: Reported earnings of$4.33 per share, significantly above estimates, with an originations volume of $8.5 billion, up 23$243.9 million and a Zacks Rank of 1 [21][22].