For most of the year, the mortgage market has been much more focused on purchase lending than refinances. That changed in August when the refinance share of the mortgage market back climbed above 50% for the first time since February. That shift appears to have been short-lived.
A new report from Black Knight shows that the market shifted back to purchases in September, with purchase rate locks making up 51% of the mortgage market.
According to the report, overall rate locks in September were down 9.7% from August, with the bulk of the decline coming via an 18.7% drop in rate/term refinance activity.
Purchase and cash-out refinances also declined, each by 6%, but the larger drop in rate/term in refinances was enough to shift the overall market back to one where purchase was more than 50%.
According to the report, the decline in rate/term refinances in September puts that lending category down more than 57% for the year. Meanwhile, despite its small decline in September, cash-out refinances are still up 21% over the last three months.
The reason for the decline in refinances is a pretty simple one, according to Black Knight Secondary Marketing Technologies President Scott Happ: increases in interest rates.
"We've noted the 'psychological threshold' of sub-3% rates in the past, with movement below that line triggering increased lending activity," Happ said.
"What we're seeing now represents the other side of that coin in a certain sense. It remains to be seen how much higher rates will climb – and how quickly – and in turn, how borrowers will react,” Happ continued. “It will also be important to see how and to what degree historic equity stakes and modest increases to for-sale inventory will impact cash-out and purchase lending in the coming months."
However, despite the modest increase seen in September, interest rates still remain near historic lows, meaning that those looking to buy or refinance will still likely find a very low interest rate available to them.