While Ellie Mae posted positive third-quarter earnings results, it was significantly lower than Wall Street’s expectations, and could even signal a slow-down ahead.
The company’s revenue increased 15% in the third quarter to $123 million. This was below the expected $128 million.
But despite the miss, Ellie Mae CEO Jonathan Corr said he was proud the company showed growth in the challenging mortgage environment.
“Rising rates, low housing inventory, and overall home affordability are serving as significant headwinds to the overall mortgage market,” Corr said. “While we believe these headwinds are temporary, they are prompting us to reset our assumptions for the year.”
The company decreased its revenue expectations from $116 to $113 million, down from the projected $128 million.
Currently, the cost to originate a mortgage is steep, hitting an all new high in the first quarter this year. Lenders even reported a loss of $118 per loan originated, only the second time ever that lenders reported a quarterly loss.
Even some of the largest lenders are struggling as layoffs are seen in mortgage departments throughout the industry. For example, in October, JPMorgan Chase laid off nearly 400 employees in its consumer mortgage banking division. Wells Fargo laid off about 650 mortgage-related employees in August, citing the low volumes.
And, as many lenders struggle in the rising interest rate environment, economist predict that the next recession will begin in 2020, or even as soon as 2019.
Nearly half of experts recently surveyed by Zillow said they expect the next recession to begin sometime in 2020, according to the company’s Home Price Expectations Survey, a quarterly survey of more than 100 real estate experts and economists.
Back in August last year, experts predicted there was a 73% chance of a recession by the end of 2020.
Even former Federal Reserve Chair Ben Bernanke predicted the economy will be “going off a cliff” in 2020.
One investor pointed out that Ellie Mae’s success depends on it signing up new users to take market share, and says the company is not struggling in that area and therefore sees no reason to panic.
But while the lower-than-expected earnings could simply be a bump in the road for Ellie Mae, it could also be yet another sign of an impending recession that is nearly upon us.