Credit scores, purchase lock volumes point to further market slowdown

Purchase credit scores hit their highest mark since 2000, and lock volumes pulled back, with both trends signaling persistent affordability and inventory pressures are unlikely to subside in the near term, according to Black Knight

Purchase locks fell 11% between late March and mid May, a period typically considered prime spring buying season, at the same time interest rates resumed their climb, according to the data and analytics provider's April Mortgage Monitor report. The latest numbers mark a turnaround from earlier in the year when momentum from falling rates pushed locks higher. The trailing three-week volume is now 38% below its mark from the same week last year and 34% lower than in 2018 and 2019.

At the same time, higher credit scores for purchases point to tightening standards that may leave hopeful buyers on the outside looking in — a situation that has plagued the housing industry for months. 

"In a sense, the gridlocked housing market has been feeding on itself," said Andy Walden, Black Knight's vice president of enterprise research, in a press release. "While elevated interest rates continue to weigh on both affordability and demand, they're simultaneously constricting supply as well, as would-be sellers who locked in ultralow rates early in the pandemic continue to sit on the sidelines."

The sluggishness marking the 2023 season thus far has also been widely observed in the past several months by other housing researchers, including the Federal Housing Finance Agency, who reported similar first-quarter trends this week. 

While price growth has cooled considerably from the highs of 12 months ago — now flat on a year-over-year basis according to Black Knight —  its data also showed prices rising again for the fourth straight month, up 0.46% in April. A decrease in for-sale inventory across 95% of markets this year is managing to keep prices elevated, even as sales volume also drops. 

"The combination of lower supply and demand in April led to both slowing sales and firming prices," Walden said. The recent movement in housing prices also means home equity values have recovered more than 60% of the value lost late last year, Black Knight said.

"Amidst all of this, we're also beginning to see clear signs of tightening credit availability," Walden said. Average credit scores for purchase locks jumped by an average of seven points since late December, hitting its highest mark since at least 2000. A rise in scores was reported among conforming mortgages, as well as loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs.

The combined impact of rising rates and home prices in recent months means it would take 34.2% of the median household income to make principal and interest payments on a typical for-sale home. The percentage remains much the same as it has over the past three months, but represents a small improvement from the 36.8% required last fall immediately after interest rates surpassed 7%. 

Four California markets lead the country in lack of affordability based on Black Knight's data, with Los Angeles leading the list. A median priced home in the City of Angels would require 65% of typical household income to make monthly payments. San Diego, San Jose and San Francisco followed at 57.4%, 55.2% and 53.9%, respectively.