Rate-Lock Activity Fell for the Second Consecutive Month in July

Black Knight, Inc. has released the latest Originations Market Monitor report, looking at mortgage origination data through July 2023 month-end. Leveraging daily rate lock data from Black Knight's Optimal Blue PPE, the report provides the industry's earliest and most comprehensive view of origination activity.

"While they moved around a bit in July, there was no escaping the fact that conforming 30-year rates topped 7% in July for the first time since they spiked last fall," said Black Knight VP of Enterprise Research Andy Walden. "On both a practical and psychological level, that put further downward pressure on mortgage demand. Purchase loans continue to dominate the origination pipeline, but current housing market dynamics are just not conducive to boosting homebuyer origination volumes."

As Walden explains, backward-looking annual home price growth rates are beginning to inflect driven by the seasonally adjusted monthly increases the Black Knight Home Price Index (HPI) has been tracking as 2023 has progressed.

"After slowing for 14 straight months, the annual growth rate jumped back to 0.8% in June, up from just 0.2% in May, amid widespread growth that saw annual rates of appreciation inflect and begin to trend higher in more than 80% of markets," Walden continued. "Rising home prices have boosted homeowner equity levels as well, which had been retreating from their 2022 highs not very long ago. In fact, despite total outstanding mortgage debt topping $13T for the first time in history, much of the decline in equity we’d tracked since last year’s peak has since been recovered."

New data revealed rate lock activity fell for the second consecutive month, dropping an overall 7%. Purchase locks, which accounted for 88% of all July activity, fell 7.4% from June. Longer-term purchase lock counts are also down 27% year-over-year and 35% off pre-pandemic levels.

Cash-out refinances also declined by -5.4% and are hovering close to 60% below where they were in July 2022, when interest rates averaged in the mid- to high-5% range. Rate/term refis increased by a modest 1.9% in July but remained down more than 31% year-over-year from an extremely low ceiling, as July 2022 itself had marked a 93% year-over-year decline.

Locks on such products will likely remain constrained for some time to come, as just 3% of existing mortgage holders have first-lien rates at or above today's levels.

"With home prices hitting new peaks across many parts of the country, and no end in sight to the for-sale inventory shortage, the housing market continues to reheat," Walden continued. "It's worth noting, however, that–in a 'normal' year–June typically marks the calendar peak of home prices on a non-adjusted basis, so you would normally expect to see a decreasing trend through year's end and into February. That said, this year, and this market, have been anything but normal. Rising rates may be tamping demand for homes at such record high prices, as evidenced by rate lock activity, but they've still yet to overcome an even greater deficit of supply. As a result, the purchase market is in a stalemate."

To read the full report, including more data, charts, and methodology, click here.