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Loan Demand Dips And Borrowers Shift Toward Jumbos, ARMs As Rate Rise Resumes

Black Knight released its latest Originations Market Monitor report, looking at mortgage origination data through February 2023 month-end. Leveraging daily rate lock data from Black Knight’s Optimal Blue PPE – a widely used pricing engine – the Originations Market Monitor provides a comprehensive view of origination activity. Here’s what they found:

“Mortgage rates ticked up again in February after a brief respite, showing once again just how rate sensitive the market continues to be,” said Kevin McMahon, president of Optimal Blue, a division of Black Knight. “Conforming rates dipped below 6% early in the month but finished it up 52 basis points from January. Even though the number of rate locks was down month over month, dollar volume increased due to a rate environment that favored jumbo and ARM loans over GSE products. Essentially, though, the story remains the same – one of a market facing significant interest rate-driven headwinds. As Black Knight reported last week in our latest Mortgage Monitor, there were clear signs of buyside demand when rates neared 6% – it just quickly pulled back when rates began to climb again.”

The month’s pipeline data showed overall rate lock dollar volume up 2% over January, with purchase locks rising 4% while cash-out refinances fell 11% and rate/term refis remained near historic lows. Combined, refinance locks made up just 14% of the month’s activity, returning to the low point in this cycle, first reached in October.  Five of the largest 20 MSAs by lock volume saw pullbacks, with former hotspot Austin experiencing a double-digit decline month over month.

“As rates resumed their upward trajectory in February, borrowers responded predictably, moving toward more rate-favorable offerings,” McMahon continued. “That included a shift to jumbos, ARMs and other nonconforming products in the month. With refinance activity basically at a floor, all eyes are on the purchase market. And yet such lock volumes remain more than 40% down from last year’s level, with the triple-threat of rate, affordability and inventory challenges still looming large for the foreseeable future.”

Each month’s Originations Market Monitor provides high-level origination metrics for the U.S. and the top 20 metropolitan statistical areas by share of total origination volume.