The Mortgage Market Gets its Groove Back

0:04Tyler Crowe:The mortgage market gets a much-needed jolt and Oracle has its best day since the dot-com boom. Motley Fool Money starts now.

0:20Tyler Crowe:Welcome to Motley Fool Money. I'm Tyler Crowe, joined by longtime fools Matt Frankel and Jon Quast. Today, we're going to follow up on Oracle's blockbuster quarter that it reported after the close on Tuesday, how that impacts AI, and a major milestone for ETFs that we just passed. And of course, we're going to do some radar stocks, maybe a little couple extras. But first, we're going to discuss activity in one of America's largest markets. Now, there's been a lot of discussion about interest rates and what the Fed will do, and we've been a little guilty of indulging that topic a bit here. But one quarter of the market that has been emblematic of the rapid changes in interest rates in recent years has been mortgages.

1:01Tyler Crowe:The most recent data from the Mortgage Bankers Association showed that the average qualifying mortgage rate dropped to 6.49%, down about 20 basis points. And just like that, demand for refinancing and new loans shot up spectacularly. Matt, show us the numbers. Chris Hillman, Yeah.

1:22Jon Quast:Refinancing activity was about 34 % greater than it was in the same week last year. Mortgage rates have come down a lot, so that's not a big surprise. It was up 12 % week over week, so really just a surge. Even though this is a relatively small move in rates, for new loans, the increases were 23 % year-over-year and 7 % from last week. So, when it comes to new loans, a lot of it has to do with an increase in existing home inventory compared to last year. But the refinancing activity is all rates. As a general rule, it can be worthwhile for the average homeowner to refinance if they can lower their mortgage rate by, let's say, one-half to three-fourths of a percentage point.

2:04Jon Quast:And there are a lot of people who, in recent years, got 7 % plus mortgage rates. So, not only that, but home prices have continued to rise. Homeowners have a lot more equity to tap into, and that's also a lot of what's driving the refinancing activity now that rates have fallen.

2:21Tyler Crowe:Chris Hillman I said at the top we weren't going to talk about upcoming rate cuts and the possibility of the Fed, but I'm actually going to break my promise and we're only a minute in. This week, we've seen some significant downward revisions in jobs report numbers. The Producers Price Index was just released for August, and we actually saw a decline in the producer's price index, which suggests a little bit of price deflation. This seems to be setting the stage for perhaps more frequent or larger rate cuts than we anticipated maybe even a couple months ago. Now, the mortgage market doesn't track interest rates, but it kind of rhymes.

2:56Tyler Crowe:So, John, with that in mind, do you foresee significant declines in mortgage rates in the coming months?

3:02Matt Frankel:See, I knew as soon as I bought this crystal ball, then people would start asking me to borrow it and things like that. Joking aside, Tyler, yes, predicting rate cuts is pretty hard. Even the policymakers themselves struggle to predict rates. So, we do need to approach this with a little bit of humility. That said, I do think that the stars are aligning here for significant cuts in rates. You look at why the Fed hasn't cut rates so far. And, I mean, one of the reasons is, I mean, the inflation, they were concerned about it. Now, We're starting to see, as you mentioned, those things starting to come down.

3:37Matt Frankel:But also jobs. They're saying that jobs were really, really strong to be cutting rates. But now they just have one of the, I think it actually was, the largest revision in history. So it turns out that jobs weren't quite as good as we thought that they were. So right now, basically, the data is catching up to the reality. And the policymakers are going to have to make some decisions based on that better data. So it does indeed look like rates are going to come down by extension. it seems like mortgage rates are going to decline significantly as well.

4:07Tyler Crowe:We've been pontificating a little bit here. So let's really have the rubber beat the road. I'm going to put you guys both on the spot. So with declining mortgage rates and kind of this surge in refinancing, new home activity and stuff like that, what are the stocks that have already been on your radar? You're probably thinking about this, but gives it that little extra jolt with the housing market becoming a little unstuck that it's been in the past couple of years. I'll start with you, Matt.

4:32Jon Quast:For me, Rocket Company's ticker symbol RKT is a big one I'm watching. During the low rate years, in 2020-2021, Rocket's refinancing volume was more than four times what it is today. That's during a time when there were a lot more competitors in the online mortgage space. A lot of companies didn't survive the 2022-2023 showdown, but Rocket's a profitable company, so it did. Not only that, but Rocket just acquired Redfin, which, say what you will about Redfin as a standalone business, it's stronger as a part of Rocket. It can not only benefit from the more lively real estate market as it has in past years, but it could also serve as a great marketing funnel for Rocket for both purchasing and refinancing loans.

5:18Jon Quast:That's a big one I'm keeping an eye on.

5:21Matt Frankel:Man, I totally forgot that Rocket acquired Redfin. That is one I'm going to have to check out as well, Matt. Thank you. For me, I'm looking at Upstart. This is a company that I still own. I've owned it for a few years now, but I am looking at it right now. Ticker symbol UPST. I think this could be a stock to watch as the housing freeze thaws out. The part of its business that has to do with homes, it's still a small percentage of the overall business. But in the second quarter of 2025, the originations were up about 800 % from the same quarter a year ago. This is largely HELOCs. So perhaps this part of the business is in for a good back half of the year here in 2025 as rates come down.

6:06Matt Frankel:Zooming out further, I think that home demand jumping is just indicative of falling interest rates more generally. That's also very good for upstart on a holistic level. So its business overall thrived in the zero rate environment a few years ago. And the business is picking back up now as rates come back down. So this might be one to watch here as macroeconomic conditions improve.

6:32Tyler Crowe:So lots of stuff going on in the mortgage market, obviously two very mortgage-related businesses here. And then coming up next after the break, we're going to take a look at Oracle's $250 billion day.

6:44Jon Quast:Support for the show comes from Fundrise. Investing in companies already in the S &P 500 can sometimes feel like you're being served someone else's leftovers. It's still a great meal, but it's hard not to imagine what the food tasted like when it was fresh out of the oven. But with Venture Capital by Fundrise, you can finally get in early and take a seat at the table alongside the biggest names in tech investing. Fundrise's mission is to give investors the access required to invest in the best tech and AI companies before they go public. Visit fundrise.com slash fool to check out Fundrise's venture portfolio and start investing in minutes.

7:18Jon Quast:All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement.

7:25Tyler Crowe:As of this, as we're talking, Oracle is up about 40 % after it had a stellar fiscal first quarter 2026 financial results. The actual reported numbers, I would say were fine, I guess, but certainly not the$250 billion that Oracle added to its market capitalization as we're talking about this. I think instead, the number that everyone seemed fixated on in Oracle's most recent earnings report was the growth in remaining performance obligations, or also known as backlog. John, can you give some context to what we're talking about with this massive growth in backlog?

8:10Matt Frankel:Absolutely. It's one of the more shocking numbers that I've ever seen, Tyler. So the remaining performance obligations as of this quarter are up 359%, 359 % to$455 billion. I don't think that my jaw has ever literally dropped after reading a report, but it did this time. To be honest with you, I somewhat panicked after seeing these backlog numbers from Oracle because it leads me to believe that my portfolio is not nearly enough exposed to AI infrastructure growth if these numbers are even remotely correct. Now, I will say the backlog does come with a caveat. As I somewhat pointed out on yesterday's podcast, short-term deferred revenue is only$12.1 billion, and it's only up 29 % year over year.

9:02Matt Frankel:So these are prepayments for services expected to be delivered within the next year. So it would seem that over 90 % of the backlog is well over a year away from being realized. A lot can happen in a year. A lot can happen over the next few years. And none of the backlog numbers are necessarily in the bank. That said, I'm not trying to take anything away from Oracle. These are jaw-dropping numbers that it's reporting for backlog.

9:29Tyler Crowe:Matt, I want to get your thoughts on the thing that stood out to me about this backlog too. If we were to take the most recent 12 months of revenue at Oracle, that means that this uptick in backlog or remaining performance obligations, however you want to call it, that's about 7.6 years of total revenue if we were to stay constant at this rate. And also, what stood out to me was actually the gap earnings per share were actually down year over year. Now, there are some one-time things here and there in that, restructuring costs and added interest expenses. But building all of the infrastructure to meet that massive demand over the next couple of years will be costly.

10:16Tyler Crowe:Infrastructure means infrastructure. That's data centers. That's all the building that we've been talking about with this AI infrastructure build-out. Do you think that with all this revenue growth will immediately lead to higher profits at Oracle? Or could it be in this weird period where growth is really high, but expense growth is just keeping pace until this infrastructure surge gets built out?

10:39Jon Quast:Yeah, well, you mentioned the 40 % gain in the stock today. Assuming that holds, this will have been Oracle's best day since 1992, not even during the dot-com bubble did this happen. So, it's clear that investors believe that all this will lead to profitability. But having said that, the capital requirements to actually realize that$455 billion in backlog revenue is going to require a lot of spending, like you said. And you mentioned that the backlog translates to about 7.6 years of its current annual revenue run rate. It's not going to be a linear growth rate there. The cloud infrastructure revenue is expected to be$18 billion in the upcoming fiscal year, followed by$32 billion, followed by$73 billion, followed by$114 billion, and finally followed by$144 billion over the next four years.

11:30Jon Quast:For me, the bigger story in this is what it means for the expected staying power of the overall AI trade. Like John said, now I think my portfolio doesn't have enough exposure to AI infrastructure, given those numbers. But in Oracle's case, You're right. It means profit growth could be somewhat of a delayed fuse because of the increased spending. How delayed it remains to be seen.

11:53Tyler Crowe:With this stock move that we saw in Oracle, Oracle co-founder Larry Ellison saw his personal wealth grow by about$115 billion with this one stock move. Not too bad of a day, I would say. Obviously, as Matt, you were alluding to, this kind of maybe adds some length to the AI spending boom fuse, if you will. and the infrastructure build-out could be growing at breakneck speed for quite a few more years. Now, both of you, John, Matt, if you were suddenly just, I don't know,$115 billion richer on a given day, and you just had a hole burning in your pocket, what are some of the companies in the space that you would be looking at today?

12:40Matt Frankel:As of this taping, Seagate Technology stock, ticker symbol STX, is the top performer in the S &P 500 so far in 2025. And I wonder if it can still be a strong performer for the rest of the year and in coming years as well, and whether or not Oracle's backlog numbers actually are pointing to good things for it in coming quarters and years. So this company provides mass capacity data storage products, and they're essential for data centers. So this is kind of a boring business. It's not really consumer facing for the things that I'm talking about here. It's more of the data center infrastructure stuff.

13:22Matt Frankel:But trading at only 28 times earnings, that's an average valuation when you look at the market. But it looks like it does have above average growth opportunity ahead. So Seagate technology is what I'm looking at here.

13:38Jon Quast:Yeah, well, kudos to Larry Ellison, first of all. I'm not even sure Elon Musk has had a$115 billion day at any point. That's got to be some kind of record. But I think that the Oracle news is a really big deal for the chip makers. I've been a big fan of AMD for a long time. Since Lisa Su took over the company as CEO about a decade ago, it has consistently been a mistake to bet against AMD. It's not just the AI chips. If you remember years ago, AMD used to be known as the, quote, cheap alternative to Intel for CPUs. They've consistently stolen market share from Intel over the past decade and are now a serious player in that space.

14:17Jon Quast:AMD has a lot of growth opportunities. Shared data center chips are one of them, and this Oracle News certainly helps. There's also autonomous vehicle chips, another area where AMD has a strong presence, and a lot of other embedded applications. So AMD is one that I added to my portfolio not that long ago, and I'm even more confident after the Oracle news.

14:36Tyler Crowe:Certainly, a lot of exchange-traded funds will be having to up their stake in Oracle after today's big move. And coming up on the break, we're actually going to talk a little bit more about ETFs because they actually passed a major milestone recently, and that's coming up next.

14:51Jon Quast:Get a concise daily market preview from Charles Schwab, including stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Schwab Market Update is an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less. Listen today at schwab.com slash marketupdatepodcast or wherever you get your podcasts. That's schwab.com slash market update podcast.

15:23Tyler Crowe:Exchange traded funds, sometimes also known as index funds, not necessarily, but they have been one of the most transformative products for individual investors in lowering fees. And some institutions have benefited from this as well. ETFs have also been setting some major milestones over the past couple of years. Last year, Morningstar reported that the total assets under management for passive ETF investing actually surpassed actively managed mutual funds for the very first time. And within the last month or so, it was also reported that ETFs passed another major milestone. There are now more ETFs listed on the exchanges than individual stocks.

16:06Tyler Crowe:So, here's a question for you. With all of these ETFs floating out there in the space, is having this many a good thing?

16:16Matt Frankel:Well, Tyler, I think generally speaking, I'm happy for the shift away from mutual funds towards exchange-traded funds in recent years. In times past, there used to be incentives in place for these stockbrokers to push onto their clients mutual funds, and they weren't always necessarily good mutual funds. Sometimes the fees were quite high, and that would lead to long-term underperformance. Today, low-cost ETFs generally can provide better returns. The incentive structures are changing. It's moving towards ETFs. I think that's a good thing. One thing I'm also pretty happy about is that it seems like investors are getting a little bit smarter when it comes to ETFs.

16:58Matt Frankel:I was just reading a report today that suggests that the biggest trend right now in ETFs is that investors are paying attention to the fees, paying attention to the fee structure, and are looking for the more favorable ones. That's creating competition in the space. Fees are coming lower. So, investors, pat yourself on the back. You're paying attention to something that matters here.

17:21Jon Quast:At some point, I have to think there might be too many ETFs. And I say that because, After all, ETFs are a business, and they generally need a minimal amount of assets under management to make them viable as a business. There's only room for but so many. Having said that, as John correctly pointed out, there are literally trillions of dollars flowing into ETFs. It's not surprising we're seeing thousands of them appear. It's the same reason why there's over 11 ,000 cryptocurrencies right now. Money's pouring into it, people create more.

17:49Tyler Crowe:Certainly. It seems like the barriers to entry for new crypto is a little bit easier than new ETFs, perhaps why we're seeing so many of them. Now, I think at this point, I should also mention that when mutual funds were all the rage back in the 1990s and early 2000s, there was actually more mutual funds than individual stocks. So, this isn't necessarily new territory. We've just changed the investing product that it seemed to be more popular than the stock market itself. Now, we're almost out of time here, and we normally do stocks on our radar, but since we're talking about ETFs, let's do ETFs on our radar.

18:21Tyler Crowe:Maybe something that investors might want to look at in that low-fee, perhaps a unique exposure to the market that they wouldn't get from, say, the S &P 500. What are you guys looking at right now?

18:32Matt Frankel:Listen, I love stock picking. I love learning about individual businesses. I love learning about those. I generally don't own an ETF. I generally stay away. That said, I think an ETF can make a lot of sense when there is a big trend that you believe in, but you don't really have the skills to pick an individual winner. For me, this could be quantum computing. I follow the quantum computing space for over a decade now. I'm really interested in it. I'm conversational in the subject, but I don't feel like I always have the kind of knowledge that you need to explain why one business will be better than the other business.

19:10Matt Frankel:For me, investing in something such as the Defiance Quantum ETF, symbol QTUM. It has dozens of stocks. The expense ratio is only 0.4%. That can make a lot of sense.