Refi activity rebound fails to materialize

Overall rate lock volume remains down due to severity of shortages

Refi activity rebound fails to materialize

Although interest rates fell across all products in May, overall rate locks were still down across the board, according to Black Knight’s latest Originations Market Monitor report.

Overall rate locks were down 4.7% month over month, with more declines seen across purchase locks (-3.4%), cash-out locks (-3.4%), and rate/term (-8.2%) refinance locks.

According to Scott Happ, president of Black Knight Secondary Marketing Technologies, supply constraints continue to hold back both purchase and refinance activity despite historically low rates. The refi share of the market mix dwindled in May, accounting for just 44% of origination activity.

“The severity of shortages in for-sale inventory seems to be a key driver behind the 3.4% decline in purchase locks from April, but the dip in refinance locks seems to have more to do with borrower psychology,” Happ said.

Happ explained that the uptick in rates seen in February drained some of the excitement in the market. Despite significant increases in refinance incentives since then, refi activity hasn’t rebounded as expected.

“As interest rates declined from March through May, refinance incentives rose by 15%. This brought the number of high-quality refi candidates in the market to over 14 million as of the end of May, but rate lock volume has failed to keep pace,” Happ said. “Refinance rate locks are instead down 27% over the same timeframe, decelerating in what would otherwise be a time of expected acceleration.”

Other key highlights of Black Knight’s Originations Market Monitor:

  • The average loan amount in May was up $6,000 to $316,500 – likely a result of a growing jumbo share of lending and home price appreciation.
  • Though the number of high-quality refi candidates increased from 12 million to over 14 million from March through May – a 15% gain – actual refinance rate locks fell by 27% over the same period.
  • On an annual basis, whereas both cash-outs (+32%) and purchase loans (+42%) were up from last May, rate/term refinance lending plunged 45% year-over-year.
  • Black Knight’s OBMMI daily interest rate tracker showed May’s month-end average conforming 30-year rate at 3.15%, down two basis points (bps) from April and down 7bps since the end of February.