Rising rates have put downward pressure on mortgage demand but not as much as I would have thought, according to Black Knight’s Originations Market Monitor report…(Black Knight)
- M-O-M: Total rate lock activity for all mortgage types fell 5.4% month-over-month.
- Y-O-Y: Total rate lock activity for all mortgage types was down 34.5% when compared to the same time one year ago.
The decline in rate lock activity was entirely driven by refinances as purchases were up for the month and year…
- Rate/term refis saw the biggest decline with a 34.1% drop from January and a 83.3% decline year-over-year.
- Cash-out refis were also down from January (-15.3%) and saw a smaller 6.3% decline year-over-year.
- Purchases, on the other hand, were up 7.2% from January and were also up 5.6% when compared to the same time last year.
Average credit scores fell for refis while saw a slight increase for purchases…
- Cash-outs saw the biggest drop with a 5 point drop from January (718) which is down 24 points from the same time last year.
- Rate/term refis were down 4 points in February (729) which is also down 16 point year-over-year.
- Purchases once again stand along as scores actually rose 1 point from January (734) while year-over-year average scores were unchanged.
NOTE: Purchases now make up 65% of the mortgage activity in February 2022.
ANOTHER NOTE: Mortgage rates ended February at 4.09%, topping 4% for the first time in two years, which was up 32 bips in just one month and is now up 87 bips from the same time last year.
I definitely expected mortgage demand to fall but I actually thought the drop would have been bigger. A year ago, economists had projected that rates over 4% would have decimated the housing market. While refis have seen a significant fall, purchase demand has never been stronger. This is unlikely to last. As rates inch closer to 5.0% with elevated home prices this, unfortunately, will price more and more people out of the housing market. However, the wild card continues to be the rental market. If rents keep rising, a home purchase at 5.0% even with higher prices might still make more financial sense. This is especially true for buyers moving from the highest-cost markets in this new remote working economy.