Purchase share of mortgage rate locks reaches record high, but activity still suppressed

Declining lock activity in purchase-dominant market doesn’t bode well for spring home sales

Mortgage rate locks for purchase loans made up 88% of all lock activity in May, a new all-time peak, according to Black Knight. But while locks saw a moderate increase during the month, locks on the whole remain limited due to the one-two punch of short housing supply and elevated interest rates.

Rate lock activity was up 14% from April to May, per Black Knight’s newest Mortgage Monitor report. Purchase locks were up almost 15%, cash-out refinances grew by 7%, and rate-and-term refi locks were up 13%.

But context is key. The bulk, if not the whole, of the rise can be ascribed to the two additional business days that May had compared to the prior month. On a daily basis, total volume was up only 4%, Black Knight reported.

“While May was an improvement over April, mortgage lending remains constrained, to say the least,” said Andy Walden, vice president of enterprise research and strategy at Black Knight. “Indeed, while rate locks on purchase loans rose from April, they also dipped to their lowest level yet relative to 2018/2019 averages as rates rose late in the month.

“Mind you, purchase loans have been making up the lion’s share of origination activity for much of the last year, making this a likely harbinger of both slowing home sales as well as purchase mortgage origination volumes on the horizon.”

Purchase loan lock counts were down 38% annually in May and are down 29% compared to the same month in 2019 (prior to the pandemic), the largest gap from pre-pandemic figures yet. Lock activity particularly suffered near the end of the month due to a further climb in interest rates, as 30-year conforming rates (which hovered between 6.38% and 6.5% during the first half of May) rose to 6.72% by month’s end.

“Despite the many headwinds – and we all know them well by now: rates, affordability, prices and inventory – this remains the most purchase-dominant market we’ve seen in decades,” Walden said. “Nearly nine out of every 10 mortgages originated today is a purchase loan.

“At the same time, the level of economic uncertainty in the market has resulted in historically wide spreads between 10-year Treasury yields and 30-year mortgage rates, and that uncertainty seems to be trickling down to tightening credit standards across the board. Uncertainty breeds a fear of risk, and that is likely driving the rises we’ve seen in downpayments and credit scores among recent originations. The credit box is certainly tightening, but it’s far from the only challenge facing prospective homebuyers.”

Indeed, credit scores on purchase locks for conforming, Federal Housing Administration and U.S. Department of Veterans Affairs borrowers rose to 734 in May, near a record high. Meanwhile, as potential borrowers sought refuge from softening affordability, the adjustable-rate mortgage share of May’s lock activity grew to 8.41%.

While higher rates have slowed price momentum somewhat, prices remain on the uptick, with average purchase prices, per Black Knight data, up for the sixth straight month to $454,000. Average loan amounts rose as well, reaching $360,000.


More Headlines