Rate-sensitivity roller coaster continues as purchase loan locks jump in March

Black Knight rate-lock data shows bounce in origination activity as uncertainty pulled interest rates down

The rate-sensitive roller coaster of mortgage origination activity continued in March, according to Black Knight, as potential homebuyers reacted en masse to the ebbs and flows of interest rates.

Interest rates rose to their highest level of the year early in the month, climbing to 6.8% before being pulled back downward by economic turbulence. Sure enough, rate-lock volumes responded to the decrease, growing 43% month over month as borrowers sought to take advantage of growth in affordability windows.

“This continues to be an incredibly rate-sensitive housing market and March’s rate-lock activity perfectly illustrates this dynamic,” said Andy Walden, vice president of enterprise research at Black Knight. “Early in the month, when rates started their climb back toward 7% – reaching 6.8% in the process – we saw pronounced downward pressure on originations. In the wake of uncertainty in the banking sector and investors’ flight to the safe haven of U.S. Treasurys, rates came down roughly a quarter of a point. The result? Another quick surge in originations, particularly in the purchase market.”

Purchase loan locks jumped 44% during the month, easily outpacing the average February-to-March increase of the past five years. Refinance lock activity grew as well, with cash-outs up 31% and rate-and-term locks up 36%, although both levels are still low by historic standards. The big jump in purchase locks pushed refi lock volume to a 13% share, a low point in the current cycle.

“It is not unusual for rate locks to surge in March ahead of the spring homebuying season, although this year’s rise outpaced what we typically see on a seasonal basis,” Walden noted. “A cooling market lacking the multiple bids and all-cash offers of the recent past has made sellers more receptive to FHA (Federal Housing Administration) offers. That, combined with a recent reduction in FHA mortgage insurance premiums and a mid-month increase in the FHA-to-conforming spread, made FHA loans comparatively more attractive.”

FHA market share rose to more than 20% of the pipeline in March. That’s up from 18% at the beginning of the year and 12% one year prior. Also notable was the decrease in the market share of adjustable-rate mortgages (ARMs). The ARM share fell to less than 9% in March as borrowers took advantage of moderating mortgage rates to return to the fixed-rate bandwagon.


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