Purchase lending is being challenged on all fronts by rising interest rates and rising home prices, forcing consumers to seek out non-traditional financing options.
Black Knight's originations market analysis shows that the number of rate locks decreased in February compared to January, but dollar volume increased because of a rate environment that benefited non-conforming loans such as jumbo loans and adjustable-rate mortgages (ARMs).
According to the pipeline data, the dollar volume of rate locks increased by 2% in February compared to January, with the acquisition of locks increasing by 4%. While this was happening, Black Knight reported that cash-out refinances dropped by 11%, and rate/term refinances stayed at record lows.
The percentage of total activity attributable to refinance locks dropped to 14% in November, matching the cycle low last seen in October. The total volume of locks has increased by 8.6% over the past three months, although it is still 58.8% below its 2022 high.
In spite of February's monthly dollar volume gain, buy lock counts are down 42% from last year and below 35% from pre-pandemic levels of 2020.
Borrowers gravitated toward more rate-favorable products as interest rates resumed their ascent in February, according to Kevin McMahon, president of Black Knight's Optimal Blue subsidiary. As part of that trend, "the month saw a switch to jumbos, ARMs, and other nonconforming products."
In February, the proportion of adjustable-rate locks increased to 10.3 percent, and the proportion of nonconforming loans to the entire loan product mix increased to 12.2 percent.
The proportion of conforming loans in the entire loan product mix fell to 56.6%, the proportion of FHA loans fell to 18.4%, and the proportions of VA loans and USDA loans fell to 12% and 0.8%, respectively.
Rates on 30-year fixed mortgages dropped below 6% for the first time since September, according to data from Black Knight's Optimal Blue Mortgage Market Indices, before increasing by 52 basis points at the end of the month.
In February, both the average loan amount and the average purchase price increased from the previous month, from $340,000 and $421,000, respectively, to $349,000 in February.
Since refinancing has slowed to a crawl, everyone is watching the homebuying market closely. McMahon noted that despite recent improvements, lock volumes are still over 40% below last year's level, with the triple threat of rate, affordability, and inventory difficulties continuing to loom large.
