Despite Drop in Interest Rates, Rate Locks Were Still Down Across the Board

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Black Knight Inc. new Originations Market Monitor report, which looks at origination data through May 2021, shows that overall rate locks were down 4.7% from April, with a more pronounced 8.2% decline in rate/term refinance locks.

The refinance share of the market mix dropped again in May, accounting for just 44% of the month’s origination activity.

And on an annual basis, only rate/term refinance lending is down from last April (-45%), whereas both cash-outs (+32%) and purchase loans (+43%) are up year-over-year.

“Though interest rate offerings trended downward across all mortgage products in May, overall rate locks were still down across the board,” says Black Knight Secondary Marketing Technologies President Scott Happ. “The severity of shortages in for-sale inventory seems to be a key driver behind the 3.4 percent decline in purchase locks from April, but the dip in refinance locks seems to have more to do with borrower psychology.

“Certainly, February’s rise in rates drained some of the excitement in the market, but despite significant increases in refinance incentive since then, refinance activity simply hasn’t rebounded as expected,” he explains.

Happ points out that as interest rates declined from March through May, refinance incentive rose by 15%. In turn, the number of high-quality potential refi candidates entering the market exceeded 14 million – but rate lock volume has failed to keep pace. Refinance rate locks are instead down 27% over the same time frame.

In other data, the average loan amount in May was up $6,000 to $316,500 – likely a function of a growing jumbo share of lending alongside home price appreciation, Black Knight says.

Black Knight’s OBMMI daily interest rate tracker showed May’s month-end average conforming 30-year rate at 3.15%, down 2 basis points from April and down 7 basis points since the end of February.

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