One month after April saw the lowest overall rate lock volume in almost a year, lock volume dropped another 4.7% in May, according to the latest Originations Market Monitor report from Black Knight.
The market’s refinance share continued to fall, dropping one percentage point month over month to 44% of May’s origination activity. May saw another sharp monthly drop in rate-and-term refi locks, which decreased 8.2% after plummeting 20% in April. Cash-out refinance locks also decreased month over month, dropping 3.4%.
Notably, purchase locks are down again (-3.4% from April), though May’s monthly purchase lock decrease wasn’t as steep as April’s (-6% from March).
While supply challenges continue to apply downward pressure on purchase lending, the slowdown in refinance originations isn’t as simple, according to Black Knight Secondary Marketing Technologies President Scott Happ.
“Though interest rate offerings trended downward across all mortgage products in May, overall rate locks were still down across the board,” he said. “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.”
February’s increase in mortgage rates dampened some consumer excitement within the market, Happ said, but since then, refi activity hasn’t bounced back as expected despite some meaningful increases in refinance incentive.
“As interest rates declined from March through May, refinance incentive rose by 15%,” Happ explained. “This brought the number of high-quality refi candidates in the market [from 12 million borrowers] to over 14 million as of the end of May, but rate lock volume has failed to keep pace. Refinance rate locks are instead down 27% over the same time frame, decelerating in what would otherwise be a time of expected acceleration.”
Despite the recent dips, both cash-outs (up 32%) and purchase loans (43%) are still up year over year, though rate-and-term refi lending has dropped annually (-45%).