While May saw a more robust mortgage market, demand is still nowhere near normal.
Black Knight’s latest Originations Market report found that though mortgage originations fared better in May than in April, they remain constrained.
Overall rate lock volumes were up 14% month-over-month in May due to April having two fewer business days. Production was up 4%.
“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,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.
“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.”
Nonconforming loans gained market share in May as rates remained elevated, rising 27 bps to almost 7% last month.
Elevated interest rates and low inventory are keeping demand at bay.
Purchase lock counts were down 38% YOY, Black Knight said, and 29% compared to pre-pandemic levels.
Refinances are struggling even more, with purchase lending accounting for 88% for all rate locks, a record high. Homeowners have no incentive to refinance while rates are high and, if they bought or refinanced during the pandemic, their payments are low.
Walden also noted that credit availability is shrinking rapidly in response to the difficult market, creating another challenge for potential buyers.
“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,” he said.
Mortgage credit availability fell in April to its lowest point since January 2013.
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