Black Knight Inc.’s latest Originations Market Monitor report, which looks at mortgage origination data through August month-end, shows that the overall rate lock dollar volume was down 9.9% month over month and at the lowest level since December 2019.
The decline was broad-based but largely driven by a 26.2% decline in cash-out refinance locks.
“Interest rate and affordability challenges have fundamentally changed the mortgage origination market for the remainder of 2022 – and the foreseeable future,” says Scott Happ, president of Optimal Blue, a division of Black Knight. “Interest rates are now at their highest level in 15 years, while affordability is at 37-year lows. Given these realities, it’s not particularly surprising that rate locks are falling sharply. Keep in mind, however, that all this is coinciding with the already traditionally slower purchasing months.”
With tappable equity near all-time highs, cash-outs had shown some early resilience even as rates began to rise. They’re now down 78.2% from September 2021. In contrast, rate/term refinance activity appeared to have found a floor, holding steady at -0.1% from August, down 93.3% year over year. This aligns with Black Knight data that shows roughly 90% of all active first-lien mortgages have current rates below 5%, putting the population of rate/term refinance candidates at an all-time low. As a result, the refi share of the market hit a new low of 16% in September.
“Interest rates jumped almost a full percentage point in September, with affordability headwinds already high,” Happ continues. “Home prices are pulling back in a growing number of markets, but across the country, affordability remains a challenge. This is likely one reason why non-conforming loans gained market share and we saw an increase of the average loan amount.”
“The decline in purchase lock volumes bears this out as well,” Happ concludes. “Purchase lock counts – which exclude the impact of soaring home values on dollar volume – show we’re down more than 10% from 2019 levels, marking the third consecutive month that the number of purchase locks has fallen below pre-pandemic norms.”