Rate locks increased in May but remained sluggish overall

Mortgage rate lock volumes increased by 14% in May compared to the month prior, but the reason for the jump mainly stemmed from May having two more business days than April, Black Knight's Originations Market Monitor report said.

Overall, origination activity, which typically increases during the spring homebuying season, remained sluggish on account of elevated rates, economic uncertainty and low inventory pressures.

Purchase locks represented 88% of the origination volume in May, the highest share on record, the data and analytics provider's report said. 

Even so, compared to last year, purchase lock counts were down 37% and 29% when compared to pre-pandemic levels in 2019. 

By loan type, purchase locks were up close to 15% compared to the month before, cash-out refinances rose 7%, rate and term refinance locks climbed 13% and the share of adjustable-rate mortgage were up 8.41%.

"While May was an improvement over April, mortgage lending remains constrained, to say the least," said Andy Walden, vice president of enterprise research and strategy at Black Knight, in a written statement. "Indeed, while rate locks on purchase loans rose from April, they also dipped to their lowest level yet relative to 2018/2019 averages as rates rose late in the month."

The origination activity seen last month may be a "harbinger of both slowing home sales as well as purchase mortgage origination volumes on the horizon," Walden added.

The data vendor's report also pointed to purchase credit scores for conforming, FHA and VA borrowers continuing to tighten in May. It's a result of an uncertain economic climate, which further complicates the journey of those trying to purchase a home.

"The level of economic uncertainty in the market has resulted in historically wide spreads between 10-year Treasury yields and 30-year mortgage rates, and that uncertainty seems to be trickling down to tightening credit standards across the board," Walden said. "Uncertainty breeds a fear of risk, and that is likely driving the rises we've seen in down payments and credit scores among recent originations. The credit box is certainly tightening, but it's far from the only challenge facing prospective homebuyers."

Meanwhile, the average purchase price for properties grew for the sixth consecutive month to 

$454,000, while the average loan rose to $360,000, the data vendor's monthly report said.

Metropolitan areas in the nation with elevated rate lock activity in May were Washington, New York, Dallas and Chicago. The Washington metropolitan area had the largest share of origination activity, with the rate lock volume coming in at 4.2%, Black Knight's report said.