Mortgage Locks Remain Suppressed but Increased in May

According to Black Knight’s Optimal Blue Mortgage Market Indices Originations Market Monitor report, the standard 30-year fixed-rate mortgage rose 27 basis points to end the month at 6.72% after starting the month at 6.38%. 

Overall, rate lock volumes were up 14% month-over-month in May, a benefit of having two extra business days, but on average, daily production was up a modest 4%. 

Despite jumbo rates remaining elevated, nonconforming locks (including jumbo and expanded guidelines) gained share relative to all other products in May. Purchase lock counts were down 38% year over year and down 29% compared to pre-pandemic levels in 2019, the greatest difference from 2018-2019 yet as rates rose again toward the end of the month. 

Black Knight reported another “sign of the times” as average purchase price of a single-family home rose to $454,000, the sixth such consecutive monthly increase, while the average mortgage also rose to $360,000 after down payments and other programs. 

Also, adjustable-rate mortgages (ARM) rose in popularity as 8.41% of May’s activity were for ARMs as more borrowers sought relief from rising fixed-rate rates. 

"While May was an improvement over April, mortgage lending remains constrained, to say the least," said Andy Walden, VP 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." 

According to Walden, purchase locks were up 15%, cash-out refinances rose 7%, and rate/term refinances climbed 13%. Purchase locks accounted for 88% of locks in may, the highest share on record in the history of the report. Even though all these numbers were up on a month-to-months basis, purchase locks were down 37% year-over-year and 29% compared with levels seen pre-pandemic levels. 

"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 continued. "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 down payments and credit scores among recent originations. The credit box is certainly tightening, but it's far from the only challenge facing prospective homebuyers."