The share of refinancing in the mortgage volume fell below 50% for the first time in 15 months in March Black Knight‘s new monthly data report, the Originations Market Monitor. As interest rates continue to rise, most lenders will focus on the buy mortgage market for the next year.
Since December 2019, millions of homeowners have saved hundreds of dollars in monthly mortgage payments by refinancing to record-low mortgage rates, often in the 2% range. Thanks to Fed intervention to reduce borrowing costs, many homeowners have saved 125 mortgage points or more on their mortgages over the past year. This has been a boon to mortgage lenders, the vast majority of whom drove the refi wave to historic origins and record profits in 2020.
But the strengthening of the U.S. economy and the acceleration of COVID-19 vaccines propelled interest rates back up dramatically in the last quarter. In mid-January, mortgage rates rebounded from all-time lows, and in late March, Black Knight estimated the median mortgage rate for 30 years to be 3.34%. That was 60 basis points more than in February, but still 20 basis points less than last year.
In March, the share of refinancing fell to 48%, which forced many lenders to quickly move away from refiners and focus on the buying market.
“The recent – and strong – moves in interest rates have rapidly changed the landscape of mortgage origins,” said Scott Happ, president of Secondary Marketing Technologies, Black Knight. “The wave of refinancing activities of the past year and a few months has suddenly given way to a mix of buying intensive. The effects of this shift are affecting nearly every area of mortgage credit, which in turn affects the wider economy. “
Despite free-fall refi activity, the total volume of locks rose 2.5% in March, while purchase locks rose 32% from February. The refinancing freezes for withdrawals also increased by 4% in a month-on-month comparison.
The three metropolitan areas with the highest proportion of locks were the Los Angeles-Long Beach-Anaheim subway, the New York-Newark-New Jersey subway, and the Washington-Arlington-Alexandria subway. In the NY-NJ-PA subway in particular, rate locking data was up 11.7% month-over-month, and Refis were still more than half the original volume.
But the top 20 metros were on par, whether shopping or refis made more of a loan cake.
“This is the first time – but almost certainly not the last time – that purchase loans have made up a majority share of monthly mortgage loans since December 2019,” said Happ. “We have also seen a decline in credit scores, a trend that is likely to continue among refis as high loan borrowers who largely drove the record volume exit the market.”
When these homeowners slowly leave the market Credit availability will continue to open to borrowers with lower credit scores and options for higher LTV products. ZillowJeff Tucker, Senior Economist, estimates this next wave of buyers will happen Millennials.
“More people came and went in more affordable, mid-size subway areas in the Sun Belt – especially from more expensive, larger cities further north and along the coasts,” Tucker said. “The pandemic has catalyzed purchases from millennial first-time buyers, many of whom can now work from anywhere.”
On average, Black Knight estimated a typical compliant loan credit score to be 751 in March, six points less than a year ago. On the flip side, FHA loan scores averaged close to 666, up four points from a year earlier. According to the report, Black Knight has seen an increase in the percentage of FHA and non-compliant origins since the start of the year, while compliant volumes – although they still account for the lion’s share of loans in March – have declined.