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Purchase lock counts drop to 9-year low as Fed signals more rate hikes

Origination activity dropped 19.4% in December, marking nine consecutive months of declines

The Federal Reserve‘s signals indicating further rate hikes for 2023 appear to have scared buyers away from the market in December. Last month tallied the fewest purchase lock counts in a single month since early 2014 as interest rates and affordability pressures challenged the market. 

Mortgage origination activity dropped 19.4% from November to December, marking nine consecutive months of declines. The drop was led by purchase locks, which declined 20.5%, according to Black Knight‘s originations market monitor report. Rate/term refis dropped 11.2% and cash-out refis were down 14.1%, with total refinance locks making up 16% of overall activity in December. 

The last month of 2022 also marked the fewest overall rate lock counts on record since January 2000, when Black Knight began reporting origination metrics. 

“The number of mortgage holders locking in a rate to refinance their existing mortgage also set a new record low for the fourth consecutive month,” Kevin McMahon, president of Optimal Blue, a division of Black Knight, said. 

The number of purchase mortgage lock counts in December — which excludes the impact of record home price changes on volumes — dropped 47% from the same month in 2021 and declined 33% compared to pre-pandemic levels in 2019. Overall rate lock counts were down a whopping 70% from last year’s levels, data showed. 

Mortgage rates peaked past the 7% levels in October before retreating due to slowing inflation numbers. Rates have continued to creep up following the Fed’s continued signal regarding additional rate hikes in 2023. Freddie Mac‘s latest weekly survey showed 30-year fixed-rate mortgages at 6.48% as of January 5 — six basis points higher than the previous week.

Minutes released from the central bank’s December meeting summary said that “a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time.”

“Mortgage rates declined through the first half of December but reversed course as the Fed doubled down on their stance of additional tightening in 2023,” McMahon said. 

The labor market data has become key for the pace of the Fed’s rate hikes amid the inflation growth rate’s slow decline. 

Employers added 223,000 jobs in December, marking two consecutive years of strong growth. Last month’s unemployment rate ticked down to 3.5%, and the average hourly earnings inched up 4.6%, compared to the previous year. 

“The spread between mortgage rates and the 10-year Treasury yield narrowed another 22 basis points in December to 264 basis points, 40 basis points off the recent high, but is still up 81 basis points for the year.”

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