Rate Locks Rose In January, But The Good News May Not Last

Rate lock volumes increased across the board in January, finally breaking a nine-month downward streak, as buyers began stepping out before the spring season.

Lock volumes rose 32% last month, according to Black Knight’s Originations Market Report.

“Mortgage rates declined in January, continuing a trend that began in early November 2022. Conforming rates dropped 36 basis points from where they were at the start of the year, and we saw that rates associated with those FHA/VA/jumbo locks all came down in kind,” said Kevin McMahon, president of Optimal Blue, a division of Black Knight.

“Triggered by this pullback, rate lock volumes rose for the first time since March 2022, driven by declining interest rates and seasonal tailwinds, snapping a nine-month streak of declines.”

Purchase (+32%) and refinance locks both saw improvement. Rate/term refis saw a 37% increase, while cash-outs were up 25%. 

Refinances made up 15% of January’s total activity, which is still historically low.

Affordability is still a challenge, with lock dollar volume down 44% YOY and 14% from January 2020.

The average loan amount rose from $336,000 to $340,000, while purchase prices jumped by $2,000 to $421,000. Active inventory is increasing but at a sluggish pace, while price growth is slowing but remains high.

As a result, though purchase locks improved month-over-month, they were still down 41% YOY.

McMahon noted that January typically brings a market rebound regardless of the market’s overall health. The data may not indicate a serious shift in activity.

“With rates picking back up in early February, it will be interesting to see whether the rebound in lock activity will hold,” he said.

Some experts expect the rebound to stay strong through the spring buying season.

Dr. Lisa Sturtevant, chief economist at Bright MLS, noted that both buyers and sellers are adjusting to the “new normal” of 6% rates and making their way back into the market.

“Overall, the Mid-Atlantic housing market is poised for a rebound as we head into the spring market,” she said“Buyers who had been on the sidelines are showing eagerness to return to the market as rates dropped to their lowest levels since September, while sellers are starting to return in some markets, pushing new listings up month-over-month across the region.”

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