The Fed-induced housing recession has hit so hard that four real estate giants just lost their Fortune 500 status

Rock-bottom interest rates during the pandemic not only fueled a refinancing boom, but also, with the help of remote working and tight inventories, fueled the housing market in a way not seen since the bubble. Fixed-rate mortgages with a term of 30 years and an interest rate of 3% – in some cases even 2% – could not be avoided by borrowers. Of course, few companies benefited more from this real estate boom than Rocket Companies, which generated $5 billion in revenue during the worst of the lockdown in Q2 2020, compared to $1.6 billion in the same quarter of 2019.

That's behind us now: the mortgage rate shock triggered by the Federal Reserve's rate hike campaign has triggered a recession in the housing market. While national house prices remain relatively stable, housing activity has not been so fortunate. Fixed investment in residential real estate, also known as residential real estate GDP, fell for four straight quarters, while applications for mortgage refinancing and mortgage purchases fell 45% and 31% year over year, respectively.

The downturn in the Fed's artificial housing market was so severe that Monday's release of the Fortune 500 list was missing four major real estate companies that made the list last year. These include Rocket Companies (#282 on the Fortune 500 list released June 2022), Zillow (#424 last year), Anywhere Real Estate (#427 last year), and Compass (#495 last year). .

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Rocket Companies, the parent company of Rocket Mortgage (formerly known as Quicken Loans), has clearly taken the biggest hit of the four real estate giants that have been delisted from the Fortune 500 list (a list of the top 500 US publicly traded companies by revenue). Over the past year, Rocket Companies revenue is down -54% compared to -24% for Zillow, -6% for Compass and -14% for Anywhere Real Estate.

Rocket Mortgage, hit hard by the decline in buy and refi markets, has not only given up on its pandemic sales gains, but has actually fallen below its pre-pandemic sales numbers (see chart above). Not to mention, the company is currently in the red, including a loss of $493 million in the fourth quarter of 2022, followed by a loss of $411 million in the first quarter of 2023.

To boost sales, Rocket Mortgage recently went so far as to underwrite a mortgage product that requires qualified and eligible mortgage borrowers to pay just a 1% down payment. This kind of creative lending reflects how challenging this macro environment is for mortgage lenders right now.

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Just because a real estate/homebuilder stayed on the list—or even rose—doesn't mean it's all sunshine and roses at the moment. Look no further than Opendoor, which climbed 159 spots to No. 266 this year after expanding its home flipping business in the first half of 2022. Turns out, Opendoor had been flying to too many locations in Phoenix, Bay Area, Reno, Las Vegas and Boise just as those western markets went into a full-blown home price correction last year. That could explain why Opendoor shares are trading at just $2.37 at Monday's close, well below their 2021 peak of $34.

Of course, there are some bright spots for housing construction. Big home builders like Lennar, which climbed 12 spots to 119 on the Fortune 500, and DR Horton, which climbed 4 spots to 120, have seen their business prospects improve. PulteGroup (No. 259), NVR (No. 376) and Toll Brothers (No. 382) also made up some places this year.

While the level of activity in the existing/resale property market has remained frozen, the new construction market has seen a notable rebound this spring. As mortgage rates triggered a downturn in the housing market last year, homebuilders like DR Horton and Lennar had an opportunity to reduce their margins (e.g., by lowering house prices and/or aggressively cutting prices) to attract buyers who were overpriced . And it's working: Developer churn rates have normalized, while new home sales are on the rise again.

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