Mortgage Activity Falls as Rates Rise to Two-Decade Highs

According to Black Knight’s Optimal Blue Mortgage Market Indices, the standard 30-year mortgage rate pushed past previous month rising above the 7.25% mark, the highest level in over 20 years, before settling at a rate of 7.07% by the end of August. 

Overall, rate lock volumes were down for the third consecutive month, as volume fell 1.5% from July, which was driven by a 1.9% decrease in purchase volume. 

Lock counts are now down 22% year-over-year and down 34% compared to pre-pandemic numbers, as higher interest rates and ever tightening affordability tamped demand down to numbers not seen since the 1980s. 

As reported in Black Knight's August Mortgage Monitor report, signs of credit tightening have been seen in rising down payments, falling loan-to-value ratios and higher credit scores. 

Average purchase prices fell slightly for the second month, landing at $450,000, with an average loan amount of $352,000 after down payments in August. Credit scores dropped slightly among primary residence purchase locks for the first time since November 2022, but still remain close to all-time highs. 

Black Knight further revealed that the number of individuals and families taking out adjustable-rate mortgages continued to fall from previous months, dropping to 6.56% of August’s lock activity, as rate offerings for traditional loans continue to be more competitive than adjustable products. 

"August was another rough month for mortgage borrowers from an interest rate perspective," said Andy Walden, VP of Enterprise Research and Strategy at Black Knight, now a part of ICE. "Indeed, 30-year conforming rates reached as high as 7.25% late in the month, hitting their highest point in more than 20 years. Current housing market dynamics continue to put a damper on mortgage demand. Rates did edge down toward the end of August, but prospective homebuyers still face the least affordable housing market in nearly 40 years." 

The month's pipeline data showed rate lock activity fell for the third consecutive month, dropping 1.5% overall. Purchase locks, which have accounted for 88% of all activity for the fourth straight months, fell 1.9% from July. Longer-term, purchase lock counts are down 22% year over year and 34% off August 2019 pre-pandemic levels. Cash-out refinances remained relatively flat (0.3%), halting a two-month decline but more than 85% below the peak monthly volumes seen back in 2021. Rate/term refis increased by a modest 1.9% for the second straight month but remain down almost 20% year over year and an astonishing 98% off the record highs set back in 2020. Locks on such products will likely remain constrained for some time to come, as Black Knight loan-level data shows that less than 3% of existing mortgage holders have first-lien rates at or above today's levels 

"Interestingly, we saw very slight upticks in both cash-out and rate/term refinance locks in August," Walden continued. "From what the data is showing us, much of this still very scarce activity is occurring among first-lien holders with older mortgages, or with particularly low balances, for whom today's rates become less of an issue. With the purchase market essentially gridlocked, but homeowner equity within inches of an all-time high, we'll continue to keep a close eye on the market for further signs of whether, how and to what degree American homeowners access that equity."