For the first time in the pandemic-era, home purchase made up a larger share of mortgage activity than refinances.
According to the latest ICE Mortgage Technology Origination Insight Report, purchase loans in June made up 51% of all closed loans while refinances accounted for 48%. This broke an 18-month streak where refinances made up more than half of closed loans.
But with refinances becoming even more affordable and summer homebuying cooling off, purchase activity likely won’t be on top for long.
Home loan refinancing rose to popularity in early 2020 as the pandemic drove interest rates exceptionally low and remained strong through the year. At its height in February 2021 — with 30-year interest rates in the mid 2s — refinances made up as much as 68% of all loan originations.
A surge in spring and summer homebuying coupled with a brief flare in 30-year interest rates in March and April pushed purchase activity ahead of refinancing.
However, with interest rates at a 5-month low and the elimination of the adverse market refinance fee, this trend may not last long. Refinancing is becoming more affordable as the purchase market begins to cool.
In fact, according to Black Knight’s July 2021 Originations Market Monitor, refinance bounced back in July with more than 20% growth in both rate/term and cash-out refinance locks, which it attributed to the repeal of the adverse market fee.
Meanwhile, purchase volume declined 7% in July due in part to low housing inventory.
Black Knight Secondary Marketing Technologies President Scott Happ said refinance activity seems to be tied to 30-year interest rates crossing the 3% threshold.
“The mid-month surge was pronounced, but short-lived, suggesting that crossing the 3% threshold was what borrowers were waiting for before acting, and when rates ticked back above that psychological line, they held back on the sidelines once again.”
According to Freddie Mac, 30-year interest rates have been below this threshold for the entirety of July and August. If Happ’s theory holds up, refinance activity will be back on top shortly.