Mortgage rates saw largest drop in more than 10 years last week

There was a drop in 30-year mortgage rates last week to the lowest point in more than a year and the largest weekly drop since 2008.

The 22 basis point drop means that rates were 4.06% last week according to Freddie Mac data, down almost one percentage point from the recent peak of November 2018.

Black Knight Inc.’s Mortgage Monitor Report says that lower rates will not only help boost the spring homebuying market but have also given new incentive to 4.9 million homeowners with a mortgage to refinance.

It says owners could cut at least 0.75% from their mortgage rate by refinancing.

This development follows the weakened refinancing activity of the fourth quarter of 2018 as rates climbed.

Black Knight’s report shows that tappable equity in that quarter dropped by $229 billion to $5.7 trillion from more than $6 trillion in the second quarter of 2018.

“Once again, the decline is being driven by falling home prices in some of the nation’s most expensive markets,” noted Ben Graboske, president of Black Knight’s Data & Analytics division. “It’s also important to note that upwards of 80% of the national equity loss was among homeowners who had more than 20% equity in their homes, so while the decline does reduce the borrowing power available to these homeowners, it does not represent a significant increase in equity stress on the market as a whole.”

HELOCs decline for third year
Graboske added that tappable equity was down 16% in Q4 2018.

“Just $61 billion in equity – slightly more than one percent of all available tappable equity – was withdrawn via cash-out refinances or HELOCs, the smallest share of available equity withdrawn since the housing recovery began in 2012,” he said.

HELOC volumes have been declining for much of the past three years as rising short-term rates made tapping equity via a line of credit more expensive.

Cash-out refis also declined in the fourth quarter but with the pull-back in rates and the Fed holding back from further hikes, things should improve.

“The last time rates were at this level, cash-out withdrawals as a share of available equity were more than 25% above where they were in Q4 2018, suggesting we could see a noticeable rebound in homeowners tapping available equity via cash-out refis in coming months given the increased rate incentive to do so,” added Graboske.

Other highlights
Other key findings of the Mortgage Monitor Report:

• Year-end data also shows that the $1.75 trillion in first-lien originations in 2018 marked the lowest volume in four years.
• Purchase loans made up 67% of all lending, the highest such share in 18 years.
• Purchase lending grew by 5% for the year, the lowest annual growth rate since the housing recovery began. Despite this slowing growth, purchase lending hit its highest level since 2006, although volumes remain more than 20% below their 2005 peak.
• Refinance lending fell by 27% for the year and was actually down 44% year-over-year in Q4 2018. While Q4 2018 saw the lowest quarterly refinance volume in five years, 2018 as a whole was the lowest annual total since 2000.
• Of the 483,000 refinances originated in Q4 2018, 82% were cash-outs, the largest share since 2006. Two-thirds of those refinancing to tap equity raised their interest rate to do so.
• Resulting post-cash-out LTVs remain low at 67%, but credit scores have begun to decline. The average credit score of a cash-out refinance borrower in Q4 2018 was 732, the lowest it’s been since 2008.