Motley Fool Hidden Gems Investing - The Mortgage Market Gets its Groove Back

Episode Date: September 11, 2025

Ever since interest rates started to rise in 2022, the American mortgage market has been stuck. With recent economic data, though, mortgage rates have been coming down and it’s bringing buyers and refinancers out of the woodwork. Plus, Oracle’s record breaking market day and the continued rise of the exchange traded fund. Tyler Crowe, Matt Frankel, and Jon Quast discuss: - Mortgage applications jumped the most in over three years - Oracle’s multi-year backlog and the implications for AI - Exchange Traded Funds outnumbering stocks for the first tim - Stocks (and ETFs) on our radar. Companies discussed: RKT, UPST, ORCL, STX, AMD, QTUM, VTWO Host: Tyler Crowe Guests: Matt Frankel, Jon Quast Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

The mortgage market gets a much-needed jolt, and Oracle has its best day since the dot-com boom. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Tyler Crowe, joined by longtime Fools, Matt Frankel, and John 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. 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. 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 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. 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. 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. So, this week, we've seen some significant downward revisions in jobs report numbers, and the producer's 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 rhymes. John, with that in mind, do you foresee significant declines in mortgage rates in the coming months. 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, the inflation, they were concerned about it. Now we starting to see, as you mentioned, those things starting to come down, but also jobs,

you know, 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. 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 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 it 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. 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. So, that's a big one I'm keeping an eye on. Man, I totally forgot that Rocket acquired Redfin, so 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 kind of thaws out.

The part of its business that has to do with homes, it's still kind of 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 kind of come down. 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 it's the business is picking back up now as rates come back down so this might be one to watch here as macroeconomic conditions improve 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 dollar day 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 kind of known as backlog. So, John, can you kind of just give some context to what we're talking about with this

massive growth in backlog? 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. These are prepayments for

services expected to be delivered within the next year. 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. 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. 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 we be in this weird period where growth is really high, but expense growth is kind of just keeping pace until this infrastructure surge gets built out?

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. 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. 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 right 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. 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. 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 maybe adds some length to the AI

spending boom fuse, if you will. 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. You just had a whole burning in your pocket. What are some of the companies in the space that you would be looking at today? As of this taping, Seagate Technology stock, ticker symbol STX, is the top performer in the S&P 500 so far in 2025. 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. This company provides mass capacity data storage

products, and they're essential for data centers. 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 the data center infrastructure stuff. 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. Seagate Technology is what I'm looking at here. 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, and they've consistently stolen market share from Intel over the past decade and are now a serious player in that space. AMD has a lot of growth opportunities. Sure, 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. AMD is one that I added to my portfolio not that long ago, and I'm even more confident after the Oracle news. Certainly, a lot of exchange-traded funds

will be having to up their stake in Oracle after today's big move. 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. In Toronto, every arrival is a statement, and nothing says it better than this. Cadillac Optic was the number one selling luxury EV in Canada for 2025. Find your rhythm across a seamless 33-inch display and an immersive 19-speaker AKG surround audio system. This city demands agility, and Optic delivers with precision to make every drive extraordinary. Let's take the Cadillac. Find out more at CadillacCanada.ca. Luxury sales claim based on S&P Global Mobility Canadian New

Vehicle total registrations for calendar year 2025 for the Cadillac definition of luxury. 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. 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. So here's a question for you with all of these ETFs kind of floating out there in the space. Is having this many a good thing? 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. 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. Investors, pat yourself on the back. You're paying attention to something that matters here. At some point, I have to think there might be too many ETFs. 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. 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, 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? 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. So 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 could make a lot of sense. John makes a great point there that ETFs can generally be used to invest in areas where you don't have the knowledge or the desire to necessarily pick individual stocks. For me, historically, this is how I've invested in healthcare, just to name one example. But I'm going to go a little bit more boring than John and say that the Vanguard Russell 2000 ETF

ticker is VTWO, could be one of the best opportunities in the market right now from a risk-reward perspective. You're not going to double your money overnight. But small caps are likely to be disproportionately benefited by falling interest rates. The valuation gap between large caps and small caps has not been this wide since the 1990s. It's one that I've been loading up on lately. You don't have to pick individual stocks, not a lot of concentration, just a good opportunity. I've got a strange feeling that there's quite a bit of overlap between the stocks in the Defiance Quantum ETF and the Russell 2000 ETF as well. I would give mine too, but we're actually running a little long on time. So we'll have to tease that for maybe our next

show. This is all the time we have for today. So for Matt and John, thanks for sharing your thoughts. And I'm going to hit the disclosure and we can get out of here. As always, people on the program may have interests in the stock they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to our producer, Dan Boyd. For Matt, John, and myself, thanks for listening, and we'll chat again soon.