Refinance Levels Hit Lows Last Seen in 2019

Announcing its latest monthly Originations Market Monitor data release covering October 2022, Black Knight, Inc found that the biggest challenge to affordability continues to be rising interest rates, which over the course of the month rose 34 basis points to 7.06%, the highest recorded in over 20 years. 

Additionally, refinance activity has continued its decent, falling another 15.7% since September to 14%, a number that is now down 92.6% year-over-year. 

"With interest rates now at their highest level in 20 years, the refi market is rapidly approaching a bottom," said Scott Happ, President of Optimal Blue, a division of Black Knight. "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 130K, and the vast majority of those are at least 14 years into a 30-year mortgage, with little incentive to restart the clock." 

The month’s data showed overall rate lock dollar volume down 14.3% over September, now at its lowest level since February 2019. This decline was in large part due to a 25.1% decline in cash-out refinance locks. As equity remains near all-time highs, cash-outs have shown some resilience even as rates continue to push past 7%—but are still down 83.6% from October 2021. 

Purchase lending continued to falter facing downward pressure from affordability constraints, largely because recent rates are offsetting recent pullbacks in home prices. By dollar volume, such locks were down 13% from September and 39% from October 2021. When looking specifically at the number of purchase locks to exclude the impact of record home price growth over the last several years, it was down 37% year over year and 26% compared to pre-pandemic levels in 2019. 

"Affordability remains the overarching concern in the mortgage origination market right now," Happ continued. "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. 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." 

Other key finding from the report include: 

• Optimal Blue Mortgage Market Indices from Black Knight tracked 30-year rates as they rose 34 basis points (BPS) overall throughout the month to finish October at 7.06%, the highest level in more than 20 years 
• The impact of elevated rates has been clear on overall lock volumes, which dropped more than 14% in October, and are now down 30% over the past three months and 61% off last year's level 
• Purchase lock counts – which exclude the impact of rising home prices – were down 37% year over year and 26% compared to pre-pandemic levels in 2019 
• Credit scores fell across the board with cash-out borrower average scores falling another 3 points; the average credit score on cash-out refinances is now at 690, 37 BPS lower than the same time last year 
• Adjustable-rate mortgages (ARMs) are gaining in popularity as affordability pressures rise, rising to account for 13.1% of October lock activity, up from 11.3% in September 
• After seeing a brief uptick In September, both the average purchase price and average loan amount fell in October to $423,000 and $337,000, respectively 

Click here to see the report in its entirety.