Higher rates push mortgage locks to their lowest point in 2 years

December's mortgage loan rate lock volume was its lowest level in almost two years due to higher interest rates and the normal seasonal drop in home buying, Black Knight said.

The Black Knight Market Volume Index fell to 196 in December, slipping 18.3% from November's 240 and down 34.9% from 310 in December 2020. It was the fourth consecutive month of declining activity, with the index dropping below 200 for the first time since January 2020.

"With the Federal Reserve speeding the tapering of its bond buying and indicating multiple rate hikes in 2022 to curb inflation, 30-year conforming rates sat above 3.3% for much of December," Scott Happ, president of Black Knight Secondary Marketing Technologies, said in a press release. "Likely in response to those rising rates — and the seasonal slowdown in home purchases — we saw locks decline across all product types in December."

The 30-year fixed rate mortgage ended the year just 2 basis points shy of 2021's high point of 3.37%, according to the Optimal Blue Mortgage Market Indices tracker.

Purchase mortgage rate locks were down 22.5% from November, but up 1.5% compared with December 2020. While the month-to-month drop in rate-and-term refinance locks was smaller at 17.1%, the year-over-year change was a decline of 73.9%. Cash-out refis had the smallest reduction in activity from November, down 9.7%. However, compared with one year ago, volume for this product increased by 17.6%.

"Seen in the light of the normal seasonal slowdown in home sales as well as our current rate environment, December's more than 20% drop in purchase loan locks isn't all that surprising," Happ said. The drop in rate-and-term refis was also expected, although he added "the size of the annual decline is noteworthy, if not sobering."

Cash-out refis, however, continue to be supported by borrowers who are able to take advantage of soaring home values to take out equity, Happ said.

Refinancings made up 48% of December's volume, up over 2 percentage points from November. The gain is attributed to the drop in purchase volume.

Conforming products had a 65.3% share of the market for December, down by 57 basis points from November and 448 bps from December 2020. Nonconforming loans, on the other hand, saw their share increase to 14.8%, up over 4 bps month-to-month and a whopping 630 bps year-over-year.

The Federal Housing Administration-insured mortgage share was virtually unchanged from November at 10.5%, while Veterans Affairs-guaranteed loans had an 8.6% share, up 19 bps. The U.S. Department of Agriculture share in December was 0.8%.