Rate lock volume is down by 68% despite drop in mortgage rates

Purchase locks declined 22%, rate/term dropped 17% and cash-out refis were down 18% in November, according to Black Knight

Mortgage rates were on a declining trend in November despite the Federal Reserve‘s efforts to tame inflation — but lower rates haven’t been enough to convince home buyers to lock in their mortgages rates in this volatile market.

Rate lock dollar volume was down 21.5% month over month in November, remaining at the lowest level since February 2019, according to Black Knight‘s originations market monitor report. Overall lock volumes are now down 39% over the past three months and down by 68% compared to last year’s level.

The decline was driven across the board by purchase locks, which were down 22%, reflecting the strong impact of seasonality, the long Thanksgiving holiday weekend, and the nationwide lack of housing inventory. 

Refinance activity continued to fall by double digits last month, with cash-outs down 86% and rate/term down by 93% compared to November 2021. Refinance activity made up 15% of the month’s lock activity, marking a near-record low share, Black Knight said.

Mortgage rates pulled back in November based on what the market perceived as good inflation news, Scott Happ, president of Optimal Blue, a division of Black Knight, said. However, the drop in rates wasn’t enough to spur higher rates of lock activity.

“The spread between mortgage rates and the 10-year Treasury yield narrowed by 13 basis points during the month to 283 basis points in a sign that investors and lenders may be seeking to accelerate the impact of falling rates. But, despite the improvement in rates, lock activity remained subdued.”

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Producer price index — a measurement of prices paid for goods and services by businesses — rose 7.4% in November, down from the revised 8.1% gain reported for October. The consumer price index — which measures prices paid by U.S. consumers for goods and services — is slated to be released on Tuesday and will be one of the indicators the Fed will review to raise interest rates this week. 

Headwinds from both interest rates and affordability continue to challenge purchase lending, with the dollar volume of such locks down 37% over the past three months and more than 50% from November 2021.

Purchase lock counts — which exclude the impact of rising home prices — were down 48% year over year and 27% compared to pre-pandemic levels in 2019. 

Credit scores for cash-out refinances fell four points from the previous month to 686 but remained unchanged for purchase and rate/term refinance transactions. The average purchase price fell 1.3% from the previous month to $414,000 and the average loan amount dropped 2.2% to $340,000 in November. 

“While we would normally expect some seasonal pullback in activity in November, we are also seeing exceptionally strong headwinds in purchase activity from continued affordability challenges and a refinance market that has dwindled to all but nonexistent levels,” Happ said. 

“Stalled inventory and rates nearly twice what they were a year ago are combining to negate the benefits of recent home price and rate declines from an affordability perspective.”

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