Black Knight Mortgage Monitor: Purchase Rate Locks "are now running 39% below pre-pandemic levels"

Note: Black Knight mentions the decline in cash-out refis, and I’ll have more on Mortgage Equity Withdrawal (MEW) on Friday with the release of the Fed’s Flow of Funds report (Z.1 - Financial Accounts of the United States).

Press Release: Black Knight: As Interest Rates Hit 22-Year Highs, 51% of Homebuyers Face $2,000+ Monthly Mortgage Payments; Nearly a Quarter Face $3,000 Payments or More

Today, the Data & Analytics division of Black Knight, Inc. (NYSE:BKI) released its August 2023 Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records data sets. Among other topics, this month’s report examines the phenomenon of $2,000-$3,000 monthly mortgage payments, which have rapidly become the norm in today’s housing market in the face of spiking interest rates and historically high home prices. As Black Knight Vice President of Enterprise Research Andy Walden explains, this is a remarkably recent development.

“The average principal and interest payment among borrowers purchasing a home using a 30-year fixed-rate loan hit its highest point ever in July at $2,306, and that’s before taxes and insurance are factored in.” said Walden. “That’s up 60% over the past two years, which got us to thinking: just when did the $2,000 monthly mortgage payment become the norm? Just two years ago, only 18% of homebuyers were facing that level of payment; as of the end of July that share had grown to 51%. Beyond that, nearly one in four July homebuyers has payments north of $3,000, up from just 5% in 2021. We’ve been talking about affordability for quite some time now, but this puts the situation in stark relief.

“Rates aren’t just hampering prospective homebuyers, though. While tappable equity levels have returned to near- record highs, rising rates are having a clear impact on how – and how much – equity mortgage holders are willing to withdraw from their homes. All in – including first-lien cash-out refis and second-lien home equity loans and lines – we saw mortgage holders withdraw $39B in equity from their homes in Q2 2023. That’s up slightly from Q1’s $37B, but only about half the volume of Q1 2022, before interest rates began to climb. Historically, from 2010-2021, mortgage holders pulled out just under 1% of available equity each quarter. But over the last three quarters, that share has fallen to 0.4%, which suggests rising rates have resulted in a roughly 55% decline in equity withdrawals. In essence, over the last 15 months, there’s been nearly $200B less equity withdrawn – and reinjected into the broader economy – than might otherwise have been, due in large part to elevated interest rates.”
emphasis added

House Prices Increased in July

Note: The Black Knight House Price Index (HPI) is a repeat sales index. Black Knight reports the median price change of the repeat sales. Here is a graph of the Black Knight HPI. The index is up 2.3% year-over-year.

• July housing data sent mixed signals, and while home prices pressed higher, there were also some hints that the market may be shifting again

• On one hand, home prices hit yet another all-time high in July, with the annual home price growth rate reaccelerating to +2.3% from +0.9% the month prior

• On the other hand, non-adjusted month-over-month gains fell back below the 25-year average after significantly outpacing historical averages from February through June, suggesting a downshift may be at hand

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Purchase Rate Lock Counts by Year & Week

Black Knight on purchase rate locks:

• Rate locks have slumped in response to the highest mortgage rates in more than 20 years, as the 30-year conforming topped 7.27% and 30-year jumbo offerings climbed above 7.4% on August 21

• Purchase locks are now running 39% below pre-pandemic levels – among the steepest deficits we’ve seen so far this year

• With home affordability having its tightest point since the early 1980s, demand is likely to remain subdued in the near term

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Mortgage Delinquencies decreased Slightly in July

Here is a graph on delinquencies from Black Knight. Overall delinquencies increased slightly in July, and are just above the record low in March.

• The national delinquency rate rose 9 basis points (bps) in July to 3.21%, but remains down 12 bps since July 2022 and near record lows

• Borrowers a single payment past due increased by 35K (3.8%), while borrowers who have missed two payments ticked up by 17K (6.4%)

• Meanwhile, serious delinquencies – those 90+ days past due – continued to improve, dropping 3K to 468K, the lowest level since the market peak in June 2006 and a 161K improvement from July 2022

There is much more in the mortgage monitor.