As previously documented on BRIIDGE, the post-pandemic divergence between residential and commercial buildings underscored the contrasting impacts of counterbalancing structural tailwinds and headwinds. These shifts were linked to the fastest monetary tightening cycle in decades, compounded by temporary changes in consumer habits.

Residential properties experienced strengthened balance sheets due to resilient demand, while commercial properties faced a protracted slowdown, leaving them particularly vulnerable to rising interest rates, especially as refinancing deadlines approached. These opposing forces failed to mitigate the broader effects on the mortgage finance industry fully.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

This industry, with exposure to both residential and commercial markets, encountered a decline in originations and a marked reluctance among consumers to refinance at elevated rates, particularly in the commercial segment. Consequently, the industry experienced pronounced cyclicality in price trends and revenue performance, prompting most companies to focus on operational efficiencies to weather the challenging environment.

Despite its exclusive focus on financing activities, the credit services industry demonstrated a robust recovery from pandemic lows. While subject to time-series cyclicality, its performance remained aligned with broader market trends on an equal-weight basis.

Unlike the heightened volatility observed in the sales growth of the mortgage finance industry, the credit services industry achieved steady and positive revenue growth throughout the period. A comparatively lower debt burden proved advantageous in the context of a sharply rising interest rate environment, alleviating pressure on margins and minimizing the need for aggressive managerial intervention to sustain profitability.

While the hybrid work culture has continued to exert pressure on the real estate sector, the credit services industry benefited from several tailwinds.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

These include increased cross-border and travel-related expenditures, as well as heightened demand among younger demographic groups. However, with consumer debt levels rising amid tightening liquidity, credit services firms have adopted a cautious approach, consistently increasing provisions for credit losses to safeguard against potential defaults.

Looking ahead, President Trump's return to the White House, coupled with anticipated shifts in economic policy, could present an arbitrage opportunity between mortgage finance and credit services companies.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA