Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Is Rocket Mortgage making money from a housing bubble?

A dangerous housing bubble could be responsible for Rocket Mortgage’s (NYSE: RKT) stock growth.

In 2020, Rocket Companies (NYSE: RKT) began trading at $21.51 on 6 August 2020; its initial public offering (IPO) date.Rocket’s stock price grew to $29.11 on 24 August 2020 and fell to $28.79 on 28 August 2020.

Frighteningly, a housing bubble could drive Rocket’s growth. For instance, MarketWatch claims U.S. sales of new single-family homes rose to the highest level since 2006. In other words, US new-home sales are at their highest level since right before the Great Housing Crash of 2007-2008.

America’s Housing Bubble

In detail, Americans bought 901,000 new homes in July 2020 for a Median Sale Price of $330,600, the US Census Bureau estimates.*

I estimate new home sales grew by 111,000 in July 2020, rising from 791,000 in June 2020. Notably, HUD revised the June new home sales estimate from 776,000, MarketWatch reports.

New home sales rose by 36% between June 2020 and July 2020, MarketWatch claims. Moreover, new home prices rose by 7% between July 2019 and July 2020.

America’s Housing Shortage

I think home prices are high because of a housing shortage. For example, the US Department of Housing and Development (HUD) estimates there were 299,000 new homes for sale in July 2020, but Americans bought 901,000 new homes.*

Housing prices are only high because they are not building enough homes. Therefore, I think the increase in housing demand is small and driven by problems in the housing industry.

To explain, I think the housing industry is incapable of meeting the demand for its products. To explain, homebuilding in the United States is so inefficient, poorly-managed, old-fashioned, and undercapitalized, it cannot meet demand.

The Coronavirus Housing Bubble

Ironically, I think housing demand is only increasing because of coronavirus. To explain, tens of millions are spending most of their time at home and they want more space.

In fact, major New York City employers brought only 8% their workforce back to the office in August 2020. Moreover, the Partnership for New York estimates only 26% of the Big Apple’s employees will return to the office by 2021.

To elaborate, a small apartment is fine when you can go out to work all day or Starbucks for a break. In addition, a family can live in a small apartment when the kids are at school.

However, when mom, dad, and the kids are home all day, they want more space. A yard and a few extra rooms could sound like paradise when you are in the loft all day.

Moreover, the people stuck at home are those who the money and credit to buy a home. Software engineers, lawyers, bankers, investment bankers, and investment analysts for example. Consequently, hundreds of thousands of Americans are house hunting and the new home supply is low.

The Coronavirus Housing Bubble is Unsustainable

Frighteningly, I think the coronavirus housing bubble is unsustainable. I consider the housing market unsustainable because America is experiencing a depression and a housing bubble at the same time.

I predict the housing bubble will collapse because the US economy is collapsing. America’s gross domestic product (GDP) fell by 32.9% during the 2nd Quarter of 2020, the Bureau of Economic Analysis estimates. In detail, America’s current-dollar GDP fell by 34.3% or $2.15 trillion during 2nd Quarter 2020.

Consequently, over 31 million Americans were claiming unemployment benefits in June 2020, economist Joe Brusuelas estimates. In addition, the United States had an unemployment rate of 10.2% in July 2020.

Notably, the US Bureau of Labor Statistics estimates the number of initial unemployment insurance claims grew by 135,000+ in the week of 15 August 2020.  In fact, 1.175 million Americans filed unemployment claims during that week.

Therefore, most Americans lack the money to buy a home. Instead, tens of millions of broke Americans are facing foreclosure or eviction. For example,  US Census Bureau data shows 22% of Americans cannot meet their rent or mortgage payment, The New York Times claims.

Coronavirus will continue

I predict the housing bubble will collapse into housing crisis worse than in 2008 if the pandemic continues until 2021. Frighteningly, experts expect the coronavirus pandemic will last until November 2021 or later.

For example, Wharton health care management professor Ezekiel (Zeke) Emanuel thinks the pandemic will last until November 2021. Emanuel thinks 250,000 Americans will die of coronavirus by the end of 2020. Frighteningly, Emanuel thinks coronavirus testing is ineffective.

Thus, coronavirus and the coronavirus depression will continue for the foreseeable future. As a result, the housing bubble will crash because people will not have the money to buy homes. Instead, unsold homes will glut the market and realtors will stand in line at the food bank.

Rocket Mortgage (RKT)  will Collapse

I predict Rocket Mortgage (RKT) will collapse because of the coronavirus depression.

Furthermore, I predict Rocket’s revenues and shareprice will grow in 3rd and 4th Quarter 2020, and collapse in 1st Quarter 2021. I think Rocket’s revenues will start falling when people stop moving to bigger homes because of coronavirus.

To explain, there are only so many professionals out there who can work from home. When all those people buy houses, housing sales will contract. Moreover, evictions could dump tens of thousands of empty homes on the market.

The Housing Market will Collapse

Conversely, we could see a rise in housing sales and new mortgages if housing price collapse with the GDP.

I think housing prices could fall by 33%; the rate of GDP collapse in 2021. On the other hand, the Federal Reserve or Congress could find some way to prop up the housing market. Thus, a housing collapse is not inevitable.

I think a housing collapse will increase demand for homes because there are millions of Americans who cannot afford homes because of an overheated market. However, it will take time for all the foreclosures to reach the market.

Rocket Mortgage will collapse

I suspect Rocket (RKT) will collapse because it has few resources. For example, Rocket reported annual revenues of $4.244 billion and an annual pretax income of $898,371 on 31 December 2019.

Currently, Rocket can augment those revenues with the $57.19 billion market cap reported on 28 August 2020. However, I think Rocket’s market capitalization will collapse when the housing market shrinks.

In conclusion, I think investors need to stay far away from Rocket Companies Inc. (RKT) because I believe the coronavirus depression will destroy the housing market. Consequently, coronavirus will destroy Rocket Mortgage’s value.


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