Though the number of high-quality refi candidates grew from 12 to more than 14 million from March through May — a 15% increase — actual refinance rate locks dropped by 27% over the same period, according to recent data from Black Knight’s Originations Market Monitor.
Month over month, overall rate lock volume was down 4.7% in May, with declines seen across purchase locks (-3.4%) as well as cash-out (-3.4%) and rate/term (-8.2%) refinance locks.
“Though interest rate offerings trended downward across all mortgage products in May, overall rate locks were still down across the board,” said Black Knight secondary marketing technologies President Scott Happ. “The severity of shortages in for-sale inventory seems to be a key driver behind the 3.4% decline in purchase locks from April, but the dip in refinance locks seems to have more to do with borrower psychology.”
According to Happ, February’s rise in rates drained some of the excitement in the market. Rates kicked up nearly a quarter of a percentage point throughout February, eventually peaking at 3.18% at the start of April. Since then, rates have fluctuated above or below 3% by roughly seven basis points. Despite significant increases in refinance incentive since then, Happ noted refinance activity simply hasn’t rebounded as expected.
“As interest rates declined from March through May, refinance incentive rose by 15%,” Happ continued. “This brought the number of high-quality refi candidates in the market to over 14 million as of the end of May, but rate lock volume has failed to keep pace.”
Overall, the refinance share of the market mix dropped again last month, accounting for just 44% of origination activity. In March, the share of refinances in mortgage origination volume dipped below 50% for the first time in 15 months. Since then, refis have slowly slipped downwards.
Where refinance rate locks struggled, purchase rates locks are still hovering above numbers seen a year ago. Both cash-outs (+32%) and purchase loans (+42%) were up from last May, though it is important to note these data points are painted against 2020’s pandemic-driven backdrop.
According to Black Knight, the average loan amount in May was up $6,000 to $316,500. The data giant attributed this rise as a result of increased jumbo lending and consistent home price appreciation. A report from Redfin found in May, nearly 54% of homes sold above their asking price — another record high and up from 26% a year ago.
“May marked the likely peak of the blazing hot pandemic housing market, as many buyers and sellers are vaccinated and returning to pre-pandemic spending patterns,” said Taylor Marr, Redfin lead economist. “Sellers are still squarely in the drivers’ seat, but buyers have hit a limit on their willingness to pay. The affordability boost from low mortgage rates has been offset by high home price growth.”
The three metropolitan areas with the greatest percentage of lock volume — both refinance and purchase — were the Los Angeles-Long Beach-Anaheim metro, New York-Newark-New Jersey metro and the Washington-Arlington-Alexandria metro. But the top 20 metros were neck-and-neck for whether purchases or refis made up more of the lending pie.