Rate lock activity declined sharply in July as rates exceeded 7% 

Rate lock activity fell for the second month in July as mortgage rates topped 7% for the first time since November 2022.

Overall rate lock volume was down 7% month over month, with purchase lending accounting for 88% of total lock activity, according to Black Knight‘s originations market monitor report. 

Even so, purchase lock counts were down 27% year over year and 35% compared to 2019 pre-pandemic levels, as high-interest rates and persisting low inventories dampened demand.

The 30-year conforming rates crossed 7% for the first time in eight months, before falling sharply and then rebounding to 6.88%, according to Black Knight’s Optimal Blue mortgage market indices.

“Purchase loans continue to dominate the origination pipeline, but current housing market dynamics are just not conducive to boosting homebuyer origination volumes,” Andy Walden, vice president of enterprise research and strategy at Black Knight, said. 

Credit scores for conforming (754) and FHA (669) borrowers remained flat in July while VA dropped one point to 712 from June.

Black Knight’s recent mortgage monitor report pointed to signs of credit tightening — attributed falling loan-to-value ratios and rising down payments.

Adjustable-rate mortgages (ARMs) fell to 6.79% of July’s rate lock activity, as rates for such products became less competitive against fixed products.

Cash-out refinances also declined 5.4% and are hovering close to 60% below where they were in July 2022 when interest rates averaged in the mid- to high 5% range.

Rate/term refis increased by a modest 1.9% in July, but remained down more than 31% year over year from an extremely low ceiling.

Locks on such products – including cash-out refis and rate/term refis will likely remain constrained for some time to come, Black Knight noted. Just 3% of existing mortgage holders have first-lien rates at or above today’s levels.

The average loan amount fell about $2,000 in July while the average purchase price on locked loans fell to $456,000, according to Black Knight’s report. 

Normally, June typically marks the calendar peak of home prices on a non-adjusted basis.

Home prices would decrease through the end of the year and into February in normal times, but this trend does not apply in this market and this year, Walden noted. 

“Rising rates may be tamping demand for homes at such record high prices, as evidenced by rate lock activity, but they’ve still yet to overcome an even greater deficit of supply. As a result, the purchase market is in a stalemate,” Walden said.