With pool of candidates still dwindling, refinance market continues to shrink

Is the refinance market starting to bottom out? Black Knight thinks so.

The real estate analytics company’s newest Mortgage Monitor report revealed that, as things currently stand, the pool of potential refi borrowers is extremely shallow.

“With interest rates now at their highest level in 20 years, the refi market is rapidly approaching a bottom,” said Scott Happ, president of Black Knight division Optimal Blue. “Indeed, our most recent Mortgage Monitor report showed that the number of borrowers with rate incentive to refinance has hit an all-time low of around 130,000, and the vast majority of those are at least 14 years into a 30-year mortgage, with little incentive to restart the clock.”

The dearth of potential borrowers helped push overall rate-lock dollar volume down 14.3% month over month in October. At the end of October, this volume was at its lowest level since February 2019, precipitated in large part by a 25.1% plummet in cash-out refi locks. Cash-out loans had shown some buoyancy even in the face of the rapidly rising rate environment, largely due to tappable equity nearing record highs early in 2022. But this resilience has faded and cash-outs were down 83.6% year over year in October.

Rate-and-term refis, meanwhile, have continued to slide, dropping by additional 15.7% last month. They’re now down an astounding 92.6% from October 2021, and refinance locks of all types comprised only 14% of all activity in October 2022.

On the other side of the market, purchase lending also continues to slide as the slowing of home price growth has been generally offset by rising interest rates. The dollar volume of purchase loan locks fell by 13% monthly and by 39% yearly in October.

“Affordability remains the overarching concern in the mortgage origination market right now,” Happ said. “Despite home prices continuing to pull back in a growing number of markets across the country, the current rate environment means affordability remains a thorny challenge.

“It’s therefore not very surprising to see a resurgence of somewhat lower-rate loan products like ARMs (adjustable-rate mortgages),” he added. “Affordability, rates and home values all factor into falling purchase prices and loan sizes, and all are generating headwinds over and above the normal seasonal downturn.”


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