Loan Lock Volumes Fall Below Pre-Pandemic Norms For 3rd Month Straight

Lock volumes dipped almost 10% from August, bringing them down 30% in the last three months and 60% YOY, according to Black Knight’s latest Originations Market Monitor.

Purchase locks are 10.2% below pre-pandemic levels. This is the third straight month of lock activity below pandemic norms.

The decline in locks coincides with interest rates rising 91 basis points in September to 6.72%, their highest point in 15 years.

Refinances made up only 16% of September’s lock activity, a new low. Of that, most were cash-out refis, though they are also down 26.2% from August and 78% YOY. 

Rate/term locks remained basically unchanged. They are down 93.3% YOY, suggesting they’ve hit a floor now.

Purchase lending accounted for most of September’s activity, though it was also down 7.6% month-over-month and 29.4% YOY.

“Interest rate and affordability challenges have fundamentally changed the mortgage origination market for the remainder of 2022 – and the foreseeable future,” said Scott Happ, president of Optimal Blue, a division of Black Knight. 

“Interest rates are now at their highest level in 15 years, while affordability is at 37-year lows. Given these realities, it’s not particularly surprising that rate locks are falling sharply. Keep in mind, however, that all this is coinciding with the already traditionally slower purchasing months.”

Sales typically fall off after peaking in June. The slowest sales months are November, December, January, and February.

Affordability still remains a major concern, hitting its worst point in 38 years. August’s payment-to-income ratio beat out June’s historic 34.3% record at 38.2% thanks to rising interest rates and inflated prices.

This is the largest share since December 1984, when rates were over 10%.

The monthly principal and interest payment on the median home is up 73% YOY, more than $900. Monthly mortgage payments are up 15% in the last six weeks alone.

Inventory has stalled after improving somewhat in the last months, suggesting prices are going to remain elevated. The national inventory deficit remained unchanged at -44%, and the market is short 600,000 listings compared to pre-pandemic levels.

“Right now, prospective sellers are not only coming to grips with falling demand and declining prices due to sharply higher interest rates, but they also have a growing disincentive to give up their own historically low-rate mortgages in this environment,”   Black Knight Data & Analytics President Ben Graboske said.

“Some may be waiting out the market to see if demand – and prices – return in the spring.”