Zillow Originating Loans
Ask someone what Zillow is and they will inevitably tell you it is an online resource for consumers looking to buy or sell a home. However, seemingly in response to a drop in its stock value, Zillow Group is moving from being a marketing/advertising resource to originating loans. Zillow has acquired Mortgage Lenders of America.
Shares of Zillow Group Inc. tumbled Tuesday toward their biggest one-day selloff in nearly six years, as the real estate information marketplace’s disappointing earnings report and outlook prompted a host of Wall Street analysts to slash their price targets, according to online source, Market Extra.
Zillow reported late Monday second-quarter earnings per share that beat expectations, but revenue that missed the mark, and provided a third-quarter revenue outlook that was below forecasts, as efforts to expand beyond its core real estate listing business were taking longer than expected.
The company said it was buying Mortgage Lenders of America for an undisclosed amount to help streamline and shorten the homebuying process or those who use Zillow Offers to purchase homes.
Zillow stock (ZG – 17.15%) plunged 17% in midday trade on Tues, which would be the biggest percentage decline since they lost 18.1% on Nov. 6, 2012. Volume was 2.5 million shares. The Class A began trading on July 20, 2011.
No fewer than 11 analysts, or about half of those surveyed by FactSet, cut their stock price targets on Zillow’s shares. That lowered the average price target to $53.11 from $56.89 at the end of July.
Most analysts believe that the acquisition will get noticed by the markets, but that Zillow can benefit from it core real estate transaction business.
Interest Rates Down but Only Slightly
Mortgage rates were slightly lower for the 3rd straight business day, but not for any particular or identifiable reason. Because of the relatively narrow range, rates are now technically as low as they’ve been since July 25th for the average lender. There are major caveats though.
Almost any scenario at almost any lender will not have changed enough during this time for the actual interest rate (the “note rate”) to have changed. Rather, the upfront costs associated with any given rate have simply gotten modestly lower. For example, if you were being quoted 4.75% two weeks ago, you’d still be quoted 4.75% today, but you might have a lender credit (or lower lender costs) amounting to a couple hundred dollars, depending on the size of the loan.
There were no significant economic events on today’s calendar and no major market movers in terms of headline news–at least not for the bond markets that underlie interest rates. That continues to be the case for the early part of the week, but things could pick up starting on Wednesday afternoon.
Ongoing Lock/Float Considerations
- Rates moved higher in a serious way due to several big-picture headwinds, including: The Fed’s rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation.
- Despite those headwinds, the upward momentum in rates has cooled off heading into the summer months. This could merely be the eye of the storm, or it could end up being the moment where markets began to doubt that prevailing trends would continue.
- It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won’t die down quickly. Temporary corrections can be explained away, but it will take a big change in economic fundamentals or geopolitical risk for the big picture to change. While that doesn’t necessarily mean rates have to skyrocket, there’s a good chance it means rates will struggle to move much lower than early 2018 lows until more convincing motivation shows up.
The rates discussed generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.
Sources: Market News, Mortgage News Daily