Home Purchase Demand Falling Below Pre-Pandemic Levels

Black Knight, Inc. has announced the release of its latest Originations Market Monitor report, looking at mortgage origination data through July month-end. Leveraging daily rate lock data from the Black Knight Optimal Blue PPE, the Originations Market Monitor provides the industry's earliest and most comprehensive view of origination activity.

"Mortgage originators continue to experience strong headwinds," said Scott Happ, President of Optimal Blue, a division of Black Knight. "Rate lock activity has been down four straight months, with declines across all loan purpose types. Purchase mortgages, which currently account for 82% of all lock activity, fell 14.3% by volume from June and are now down 22% from last year. The purchase lock count, which excludes the impact of soaring home values on volume, is off 25.8% from last year. That count is now down 11% from 2019, marking the first month the number of purchase locks has fallen below pre-pandemic levels, as affordability challenges continue to cool the housing market."

The month's pipeline data showed overall rate locks down 14.4% month over month, led by a 16.9% decline in rate/term refinance locks, which are now down 93.6% since last year. Cash-out refinance activity fell another 14.1% from June -- a 67.2% year-over-year decline. The refi share of the market held at just 18%, the lowest point on record since at least January 2018, when Optimal Blue began tracking the metric. Government loan products gained market share as FHA lock activity increased at the expense of non-conforming loan volumes, a trend also likely reflected in another decline in the average loan amount -- from $351,000 to $344,000. The overall average credit score in July was 722, with scores on cash-out refinances edging modestly lower to 692 -- the lowest since Optimal Blue began tracking the metric in 2013.

Key Findings:

• Black Knight's Optimal Blue Mortgage Market Indices tracked 30-year rates as they pulled back to finish the month at 5.3%, a drop of 49 basis points (bps) from June.
• Total lock volumes were down 14.4% from June, with declines seen in both rate/term (-16.9%) and cash-out (-14.1%) refinances as well as purchase loans (-14.3%), which accounted for 82% of all lock activity.
• The purchase lock count, which excludes the impact of soaring home values on volume, is off 25.8% from last year and 11% from 2019, marking the first month the number of purchase locks has fallen below pre-pandemic levels, as affordability challenges continue to cool the housing market.
• The average purchase price among homes being financed fell by another $10,000 (-2.2%) in July and is now down by more than $31K (-6.6%) since March as rising interest rates have eroded buying power and affordability in recent months.
• Conventional and government-backed (FHA and VA) locks captured additional market share from non-conforming products, a trend also likely reflected by a further decline in the average loan amount.
• The average borrower credit score on cash-out refinances edged slightly lower to 692, reaching the lowest point since Optimal Blue began tracking the metric in 2013.

"Although 30-year interest rates actually pulled back slightly in July, the originations market is still reacting to previous increases and continuing affordability challenges," Happ continued. "As we reported in our recent Mortgage Monitor report, home prices have begun to pull back in some of the hotter home markets, particularly those on the West Coast. With the end of the traditional homebuying season approaching, we will be watching this trend closely."

Each month's Originations Market Monitor provides high-level origination metrics for the U.S. and the top 20 metropolitan statistical areas by share of total origination volume. To read more detail on July's origination activity, click here.