🔎Quick update on RKT and BETR
Both are patiently waiting for the inevitable resurrection of the housing market. Better's setup is particularly compelling. Mgmt used the hype to collect capital cheap & CEO Garg is buying stock.
Merry Christmas everybody! I hope you had a great 2025 and I hope that your 2026 will be even better. I want to finish off this year with a quick update on Rocket Companies and Better Home & Finance.
TLDR Summary
As often discussed, I believe that a main theme of 2026 will be the unravelling of the Debasement Trade. Cash and government bonds would perform strongly in that scenario. Many sectors would produce disappointing returns. Real estate would likely be an exception. In fact, it could see a revival should interest rates fall faster than currently expected by most.
Rocket Companies and Better Home & Finance are mortgage brokers, the shares of which obviously correlate negatively with mortgage rates. Both companies have strong operating leverage which promises booming earnings should home transaction volumes and mortgage refinancing volumes recover.
The setup for Better is particularly compelling. Most of the speculative retail flows seem to have disappeared and the valuation is back to more attractive levels. The company managed to use the hype to collect capital at low cost for their expansion plans. CEO Garg owns a ton of stock (about 12% of all shares) and has just yesterday announced he will buy even more.
Framing the opportunity from a macro perspective
If you are familiar with my macro work, you know that I believe the odds favor that the next market correction will not be a rate scare, but a growth scare. In my opinion, there is more downside risk than upside potential in US Dollar liquidity right now. Many investors will likely be caught wrongfooted should existing risks materialize. For more details, please check out my latest monthly market strategy piece.
If I end up being correct, we will see interest rates falling faster than currently anticipated. So far, this is not happening. The 30-Year Treasury yield is not showing any weakness, yet. In fact, it’s flirting again with the 5% barrier that has acted as a firm resistance over the last few years. Many are afraid it will decisively jump above it.
However, mortgage rates have been trending down for the last two years. Their spread over Treasuries is narrowing. They are close to the next test of the 6% support. They appear to be in a solid downtrend.
The more mortgage rates fall, the better obviously for mortgage brokers. They will benefit from increased refinancing activity and potentially increased home sales.
Existing home sales are currently about a million units per year lower than where they were in the 2010s. Pressure is clearly building up. Eventually, the housing market has to emerge from the dead again. People need to move. People will move.
The bull cases for Rocket Companies and Better Home & Finance have two dimensions, a cyclical and a structural one. From a cyclical perspective, they are leveraged bets on falling mortgage rates. And from a structural perspective, they are bets on technological disruption the mortgage origination. Both have been taking market share from banks and credit unions.
Rocket’s beta against the 30-Year mortgage rate is -0.003 based on monthly returns. This means, a 100 bps drop in the mortgage rate in one month tends to raise Rocket stock by 30%.
Better stock is a bit messier because the company is not as mature yet. But it seems that its mortgage rate beta is about twice as high as Rocket’s.
I have highlighted two outlier dots in the dot plot below: The +150% return in September 2025 when the Better became a meme stock due to speculative retail flows and the 97% drop in August 2023 when the stocks SPAC-listing ended really badly. I had touched on that disaster in my original Better article.
Let’s take a closer look the latest operating performance of both companies.
Rocket Companies
The last time I covered Rocket was after their 2Q25 earnings. I was impressed with their results because they kept growing their topline at double-digit rates against a brutal macro environment. Operating expenses were a bit high for my taste, but still within an acceptable range.
Rocket stock was reacting very positively to those earnings, primarily due to optimistic commentary from Management on near-term market activity. I called this encouraging, but also cautioned that it raises the bar and thereby the risk for disappointment. I found it unnecessary that Management built up expectations. Investors would have been willing to give them a pass for a more conservative tone as mortgage rates were still prohibitively high. Instead they risked the most valuable asset they have: their credibility.
The stock kept pumping in subsequent weeks and peaked in mid September. It has been consolidating ever since.
Rocket released their 3Q25 earnings on October 30, 2025, reporting $1.6bn in revenues and $158m in adjusted net income.
A year-over-year comparison is of limited value at this point because the company completed its acquisition of Redfin at the beginning of this quarter. This added about $1bn in annual revenues at negative margins.
This makes their financial statements less appealing in the near-term. The acquisition makes sense though in my opinion due to sizable synergies between both companies and upside in Redfin’s business as a result to their restructuring efforts. More detail on that here:
The acquisition of Mr. Cooper closed on October 1 which means it will be consolidated during 4Q25 for the first time. Mr. Cooper is a mortgage servicing company. As such, it actually benefits from higher mortgage rates because lower prepayments would then raise servicing fees. This somewhat dilutes Rocket’s suitability as a bet on falling rates. On the other hand, it stabilizes its operations depending on what you are looking for as an investor. More detail here if you are interested:
Overall, Rocket’s core business is still operating at close to breakeven, patiently waiting for a cyclical impulse in the housing market. For what it’s worth, Management is still very vocal in their calls about their business optimism, both at the industry level and at the company level as they are highlighting continued market share gains.
Better Home & Finance
I presented my bull case for Better Home & Finance on August 18, 2025. At that time, the stock was trading at $17 and was in the process of popping subsequent to encouraging 2Q25 earnings release. At that time, it was completely under the radar. Retail had not yet caught on to it.
I argued that it’s best to think of them as a mini version of Rocket: a digital-first mortgage originator trying to disrupt traditional underwriting processes with automation and gain market share from the cost advantage and user comfort.
The company is still subscale, unprofitable and has a lot to prove. However, recent income statement trends demonstrated in my opinion potential for an amazing operating leverage that could very well rival Rocket’s. And all of that while Rocket’s price-to-underwriting volume multiple was about five times higher.
The stock went absolutely vertical over the following weeks because several high profile ‘finfluencers’ started pumping it and the stock’s float was way too small to accommodate the surge in investor interest.
The stock marked its highest close on October 23, 2025 at $86. Since then, it has produced an equally impressive crash. As of this writing, it’s down more than 60% from that high.
This consolidation is probably due to a pain trade for speculative investors/traders that was inevitable. But it’s likely also related to selling pressure from the company’s equity offering.
On September 26, 2025, they had announced a program to sell up to $75m of common stock. As of December 19, 2025, they have sold $35m of shares under this program. Progress on this offering removes a good amount of the overhang on the stock and it demonstrates that the company used the retail hype to collect capital at low cost for their expansion plans. Clearly a positive force going forward.
Better released their 3Q25 earnings on November 13, 2025. They originated $1.2bn in loans (for reference Rocket originated $32bn), which generated them $44m in revenues (Rocket: $1,6bn).
This puts their cash revenues to 3.6% of origination volume vs. 5.2% achieved by Rocket.
Their net loss was $39m, $3m worse sequentially, but $15m better year-over-year.
Since their sequential revenue growth was mostly flat, 3Q25 doesn’t allow for meaningful new insight on their operating leverage.
Perhaps the most interesting recent news out of the company is that they announced yesterday that CEO Garg plans to buy $5m worth of shares through a Rule 10b5-1 plan. He already owns about 12% of the company and at a $560m market cap, his additional purchases would increase his stake by about 1%-point. A strong sign of confidence.
Sincerely,
Rene