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May Rate Locks See Modest Rise, Remain Suppressed On High Rates, Lack Of Inventory

Black Knight, Inc. released its latest Originations Market Monitor report, looking at mortgage origination data through May 2023 month-end. Leveraging daily rate lock data from the Black Knight Optimal Blue PPE, the Originations Market Monitor provides the industry’s earliest and most comprehensive view of origination activity. Here’s what the report showed:

“While May was an improvement over April, mortgage lending remains constrained, to say the least,” said Andy Walden, vice president of enterprise research and strategy at Black Knight. “Indeed, while rate locks on purchase loans rose from April, they also dipped to their lowest level yet relative to 2018/2019 averages as rates rose late in the month. Mind you, purchase loans have been making up the lion’s share of origination activity for much of the last year, making this a likely harbinger of both slowing home sales as well as purchase mortgage origination volumes on the horizon.”

The month’s pipeline data showed locks increased 14% overall on a month-to-month basis, with purchase locks up almost 15%, cash-out refinances rising 7% and rate/term refinance locks climbing 13%. The bulk of that increase can be attributed to May having two more business days than April. Adjusting for that, daily volume was up a more modest 4% month over month. Purchase locks accounted for 88% of locks in May, the highest share on record. Even so, purchase lock counts were down 37% year over year and 29% compared with pre-pandemic levels in 2019.

“Despite the many headwinds – and we all know them well by now: rates, affordability, prices and inventory – this remains the most purchase-dominant market we’ve seen in decades,” Walden continued. “Nearly nine out of every 10 mortgages originated today is a purchase loan. At the same time, the level of economic uncertainty in the market has resulted in historically wide spreads between 10-year Treasury yields and 30-year mortgage rates, and that uncertainty seems to be trickling down to tightening credit standards across the board. Uncertainty breeds a fear of risk, and that is likely driving the rises we’ve seen in down payments and credit scores among recent originations. The credit box is certainly tightening, but it’s far from the only challenge facing prospective homebuyers.”