Mortgage rates are dropping at their fastest pace in nearly a year which could give a much needed boost to the frozen housing market-- as well as stocks tied to home loan servicers, builders and home retailers. 

The Data: 

The 30-year fixed mortgage rate averaged 6.35% for the week ending Sept. 11, down from 6.50% the prior week, according to data from Freddie Mac. The 15 basis point drop is the largest weekly decrease in the past year and brings rates to their lowest level since last October. 

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The dip sparked interest among homebuyers and homeowners and led to the highest growth in purchase applications in over four years and an increase in refinancing activity. 

Effects on Home Loan Servicers

The surge in refinancing applications directly benefits home loan servicers with an uptick in processing volumes, refinance fees and potentially overall revenue. 

As more borrowers seek to reduce their monthly payments, home loan servicers experience heightened business activity and improved financial performance during periods of falling mortgage rates.

Servicers such as Rocket Companies, Inc. (NYSE:RKT), Mr. Cooper Group, Inc. (NASDAQ:COOP) and LendingTree, Inc. (NASDAQ:TREE) could see fee income growth and higher earnings in a lower mortgage rate environment. 

Effects on Homebuilders

Lower borrowing costs make homes more affordable and lift demand for new builds. Homebuilder stocks like Lennar Corp. (NYSE:LEN) and PulteGroup, Inc. (NYSE:PHM) stand to benefit as improving affordability draws buyers back to the market. 

Reduced interest rates can also lower the financing costs for builders themselves, making it less expensive to acquire land and fund new construction projects, which, over time, can help increase housing supply and support industry growth.

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Effects on Retailers

As home sales pick up with falling rates, retailers benefit since new homeowners typically invest in updates such as painting, flooring, kitchen and bath remodels, as well as new appliances and furniture

Lower rates reduce monthly mortgage payments, freeing up disposable income. Homeowners can spend more on renovations, remodeling and new furniture, supporting both large and small projects.

Home improvement retailers like Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) and furniture retailers like RH (NYSE:RH) and Wayfair, Inc. (NYSE:W) could benefit as mortgage rates fall. 

The Takeaway

The recent decline in mortgage rates is creating ripple effects across multiple corners of the housing ecosystem--from loan servicers and builders to retailers. 

If rates remain lower, or decline further, borrowers, lenders and housing-adjacent companies all stand to gain from renewed activity in the housing market that had been largely stuck in place.

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