Mortgage rates topping 7% for the first time since last fall put downward pressure on mortgage demand, according to the Black Knight Originations Market Monitor report.
The report paints a picture of a challenging and volatile housing market, with high-interest rates and an inventory shortage contributing to decreased mortgage origination volumes and a stagnation in the purchase market.
"While they moved around a bit in July, there was no escaping the fact that conforming 30-year rates topped 7% in July for the first time since they spiked last fall," said Andy Walden, Black Knight's vice president of enterprise research and strategy. He added that the increase put further downward pressure on mortgage demand.
According to the month's pipeline data, rate lock activity fell for the second consecutive month, dropping 7% overall. Purchase locks comprised 88% of all activity in July and saw a 7.4% decline from June. In the longer term, purchase lock counts are down 27% year over year and 35% off 2019 pre-pandemic levels.
The report also showed a decline in cash-out refinances, which dropped by 5.4%, and are now almost 60% below July 2022 when interest rates were in the mid-to-high 5% range. Conversely, rate/term refis saw a modest 1.9% increase in July, though they remain more than 31% down year over year from an extremely low ceiling. The future for such products appears constrained, with just 3% of existing mortgage holders having first-lien rates at or above current levels.
Walden further explained the complexities of the current housing market, stating, "With home prices hitting new peaks across many parts of the country, and no end in sight to the for-sale inventory shortage, the housing market continues to reheat." He noted that the current year and market conditions have been anything but normal, leading to a stalemate in the purchase market.
While rising rates may dampen demand for homes at record-high prices, the lack of supply remains an overriding issue. In a typical year, June marks a calendar peak for home prices, followed by a decreasing trend through year's end and into February. This pattern has not held true in the current market.
