Mortgage Activity Suffered Under High Rates In August

Mortgage activity dipped in August as rates reached new highs and inventory remained low, according to Black Knight’s latest Mortgage Monitor report.

The 30-year conforming soared above 7.25% last month, its highest level in more than 20 years, before cooling down to 7.07%.

As a result, overall rate lock volumes sank for a third straight month, down 1.5% from July. 

“August was another rough month for mortgage borrowers from an interest rate perspective,” said Andy Walden, VP of enterprise research and strategy at Black Knight. “Rates did edge down toward the end of August, but prospective homebuyers still face the least affordable housing market in nearly 40 years.”

The biggest driver was purchase volume, which fell almost a full 2% month-over-month. Purchase locks were down 22% YOY and 34% from pre-pandemic levels.

Credit is getting tighter as banks and lenders struggle against the housing market downturn.

Black Knight reported rising down payments, falling loan-to-value ratios, and higher credit scores needed to secure a loan. Though the average credit score for primary residence purchase locks dropped for the first time since November 2022, it remains near a record high.

Contributing to this is increasing home prices as competition remains stiff. Annual home price gains are way up in recent months, increasing 2.5% in July alone. High rates are keeping prices from ballooning outside of seasonal norms, but as long as competition abounds, affordability will worsen.

Interestingly, rate/term refinances saw a slight boost in August.

Though they remain 98% below their record-breaking 2020 levels, some homeowners decided to bite the bullet last month.

“From what the data is showing us, much of this still very scarce activity is occurring among first-lien holders with older mortgages, or with particularly low balances, for whom today’s rates become less of an issue,” Walden noted.

No real movement on refis is expected anytime soon, however, as just 3% of homeowners have rates at or above today’s levels. Homeowners say that 5.5% is the “magic number” to spark interest in refis and get rate-conscious homeowners to sell.

When that might happen is anyone’s guess, though analysts predict rates will begin to come down by year-end.

“While mortgage rates may not return to sub-3% levels again anytime soon — if ever — there’s no reason to think that they’ll stay as high as they currently are forever,” Jacob Channel, senior economist at LendingTree, told CNBC.

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