Even the prospect of higher mortgage rates is impacting different subsections of mortgage activity.
Mortgage Activity Changing
A Black Knight analysis of mortgage pipeline data determined that “rate-and-term” refinancing fell -18.7% m/m from August to September and -57.1% from one year ago.
On the other hand, cash-out refinancing rate locks dropped only -6% m/m in September and were up +21% over the last three months. According to Black Knight’s monthly Originations Market Monitor. This robust uptick in cash-out refis spurred the overall refinance share of the market mix above +50% in August for the first time since February 2021.
Purchase loan rate locks also fell slightly by -6.1% m/m in September.
The bigger decline in rate-and-term refinancings drove the overall market share for refis below -50% from August to September. According to Scott Happ, head of Black Knight’ssecondary marketing technologies, climbing average conforming 30-year average offering rates (up 16 basis points to hit 3.2% by the end of September) drove down rate lock volumes across the board in September, but “… the largest decline was seen – once again – in locks on (rate-and-term) refinance loans.”
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Average Credit Scores by Loan Purpose
Happ said, “We’ve noted the ‘psychological threshold’ of sub-3% rates, with movement below that line triggering increased lending activity.” Now, the opposite is happening…above 3% rates is triggering less lending activity.
How high rates climb plus “…how and to what degree historic equity stakes and modest increases to for-sale inventory…” affect both cash-out and purchase lending are questions for industry experts to monitor in the near term.
Affordability Taking Hits from Rising Home Prices & Interest Rates
Black Knight’s August Mortgage Monitor indicated that the monthly mortgage payment on an average priced home with a 20% down payment and a 30-year fixed rate mortgage jumped almost +20%, or $1,297, during the first nine months of 2021.
Now, 21.6% of the median household income is required to make a monthly mortgage payment on the average home purchase. This translates into housing affordability being the least affordable since 2018.
Analysts with Black Knight warned, “If home prices and incomes hold steady, but interest rates climb to 3.5%, the average monthly payment would rise more than $100 and affordability would hit a 12-year low. If rates on a 30-year mortgage hit 4%, the payment-to-income ratio would jump beyond its 1995-2003 average. At 5%, affordability would drop to the lowest levels ever, excluding the 2004-2008 housing bubble.
Thanks to Black Knight and Inman.