Mortgage locks at lowest point in almost 3 years

August’s mortgage production activity was the lowest since the end of 2019, as rate lock activity dropped nearly 9% from July due to the continuing rise in interest rates, Black Knight said.

Compared with August 2021, rate lock volume was down over 57%.

The largest percentage drop-off was in rate-and-term refinance mortgages, the loan purpose most vulnerable to interest rate cycles, which were down 13.9% month-to-month and 94.5% year-over-year

For cash-out refis, a need-driven product, the higher rates drove lock volume down 8.9% versus July and 72.2% compared with last August. 

Purchase locks, which made up 82% of August’s activity, were down 8.7% from July and 28.2% from one year prior.

“That count is now down more than 16% from 2019, marking the second consecutive month the number of purchase locks have fallen below pre-pandemic levels, as well as the lowest August count in more than four years,” Scott Happ, president of Optimal Blue, a division of Black Knight, said in a statement.

Meanwhile, the market share shift to government-guaranteed lending products, designed for borrowers with lower credit scores and/or high loan-to-value ratios, continued in August.

Conforming loans made up 57.1% of August’s rate locks, down 56 basis points from July, 183 basis points over a three month period and 915 bps compared with August 2021.

The other category of conventional lending, nonconforming mortgages, saw its share drop 16 bps from July and 230 bps over the prior three months. However, nonconforming lock share was up 104 bps from one year prior.

Meanwhile Federal Housing Administration locks had a 17.2% share in August, up 31 bps from July, 258 bps over three months and 652 bps from August 2021.

Locks for Veterans Affairs mortgages rose to a 10.8% share, up 33 bps from one month earlier, 105 bps over three months and 156 bps from the prior year.

Home price growth has been retreating for several months, with a prior report from Black Knight showing a 0.77% decline between June and July. CoreLogic’s data similarly indicated a 0.3% drop over the same period.

“We’ve observed declines in both the average purchase price and average amount financed in each of the past five months, with each now down 9% since March,” Happ said. “We will keep a close eye on this trend as the market moves into the traditionally slower purchasing months ahead.”