Here's Why Rocket Mortgage Is a Buy Before the End of 2025

Over the past few years, the housing market has come under pressure. After home prices rose amid the COVID-19 pandemic, rising interest rates due to inflation made housing affordability an issue, and home sales have declined dramatically.

There could be some hope on the horizon. Today, the 30-year fixed-rate mortgage has steadily fallen from the October 2023 peak of 7.76%. Experts anticipate a modest decline in mortgage rates next year, which could benefit Rocket Mortgage (NYSE: RKT).

But that's not the only factor. Rocket Mortgage has diversified its business across various parts of the residential housing market, aiming to make it more resilient across cycles. Here's why investors should consider buying Rocket Mortgage before the end of this year.

Image source: Getty Images.

Falling mortgage rates could spur refinancings

Rising interest rates have been a thorn in the side for mortgage originators like Rocket Mortgage. That's because the higher rates have raised housing costs for new homebuyers. Not only that, the high rates have discouraged those who locked in ultra-low mortgage rates during the pandemic-era lows. As a result, the housing market has been in a "frozen" state for a couple of years.

Hope could be on the way. Over the past year and a half, the Federal Reserve has reduced its benchmark interest rate by 1.5%. As of this writing, many expect the central bank to lower rates by another 25 basis points during its December meeting.

If interest rates fall further next year, as could happen if inflation continues to moderate, Rocket stands to benefit from increased refinancing activity. That's because it could give homeowners who took out mortgages in recent years, when mortgage rates were north of 7%, a chance to refinance and reduce their monthly payments.

Rocket has made huge investments to be more resilient

While falling interest rates could benefit Rocket's refinancing business, the company has taken steps to diversify its operations to reduce its boom-and-bust nature. Through a couple of significant acquisitions, Rocket has expanded into a full-service housing company with an integrated homeownership platform.

One major acquisition was Redfin, a residential real estate brokerage. Rocket completed its acquisition in July, giving it "top-of-funnel" reach. Redfin connects 50 million customers with Rocket Mortgage, helping it capture demand from the beginning of customers' search. This aligns with Rocket's goal of creating a seamless experience for buyers from home search to closing.

Rocket quickly integrated the two platforms, including prequalification buttons on every home listing page, with the "Redfin powered by Rocket" brand. Rocket Companies projected $200 million in total synergies from the Redfin acquisition, with full run rate realization targeted for 2027.

Another big acquisition was Mr. Cooper Group, the largest residential loan servicing company in the United States. This acquisition massively expands Rocket's loan servicing portfolio and shifts its business model to one that spans the entire homeownership platform. Rocket's servicing business now has 10 million customers and generates $5 billion in recurring annual cash flow, positioning it to perform well even when interest rates are elevated.

In addition, the company is using artificial intelligence (AI) to automate much of its business. It sees the housing industry as highly fragmented, describing it as "one of the last frontiers, ripe for technology-driven disruption." It has invested $500 million in AI over the past few years, automating its platform so it can handle surges in volume as part of its integrated housing platform.

Rocket Mortgage is a well-diversified real estate company

Rocket has made some bold investments that diversify its business and make it more resilient across economic cycles. The combination of Rocket's origination business, Redfin's customer acquisition, and Mr. Cooper Group's loan servicing positions Rocket as a one-stop shop for home shopping, financing, and servicing, helping to create lasting customer relationships.

Falling interest rates over the next year could benefit Rocket's refinancing business. Even if interest rates don't decline significantly, Rocket's upgraded business positions it well to capture a larger share of the fragmented housing market.

Courtney Carlsen has positions in Rocket Companies. The Motley Fool has positions in and recommends Rocket Companies. The Motley Fool has a disclosure policy.