Loan lock activity stifled by rising interest rates

July's volatile mortgage interest rate environment ended up cutting demand, with lock volume declining for the second month in a row, Black Knight said.

Data from its Optimal Blue product and pricing engine found the conforming 30-year fixed rate mortgage at or above 7% for the first time since last November between July 6 and July 10.

"On both a practical and psychological level, that put further downward pressure on mortgage demand," said Andy Walden, vice president of enterprise research and strategy at Black Knight. "Purchase loans continue to dominate the origination pipeline, but current housing market dynamics are just not conducive to boosting homebuyer origination volumes."

The conforming 30-year FRM quickly pushed back down to the 6.7% range before starting to rise again at the end of the month. Since Aug. 1, rates have gone back above 7% again on three — albeit not consecutive — days, the Optimal Blue data said. (Black Knight has an agreement to sell Optimal Blue to Constellation Software as part of a way to win regulatory approval for its own agreement to be purchased by Intercontinental Exchange.)

The Mortgage Bankers Association's Weekly Application Survey had the 30-year conforming FRM at 7.07% for the week of July 7. It went back above 7% in its Aug. 4 survey.

However, the Freddie Mac Primary Mortgage Market Survey, while getting close to 7%, has not gone over that point since last November.

Black Knight's measurement of rate lock active, the Market Volume Index, was at 98 for July, down 6.9% from June's 105 and 30.2% compared with July 2022, when it was 140. It is at its lowest point since April, when it was 93.

The purchase component made up 86 points of the MVI, down 7.4% month-to-month and 25.2% from one year prior.

Over the same time frame, the cash-out refinance index of 8 was 5.4% lower than the prior month and 59.3% from the same month in 2022.

The rate and term index was at 4, up 1.9% from June but 31.2% lower from one year prior. Refis, no matter what the purpose, made up 12% of July's rate lock volume.

"It's worth noting, however, that — in a 'normal' year — June typically marks the calendar peak of home prices on a non-adjusted basis, so you would normally expect to see a decreasing trend through year's end and into February," Walden said.

The inventory shortage has changed that, making the current market anything but normal.

"Rising rates may be tamping demand for homes at such record high prices, as evidenced by rate lock activity, but they've still yet to overcome an even greater deficit of supply," Walden continued. "As a result, the purchase market is in a stalemate."