Black Knight: 57% of Recent Borrowers Used Rate Buydowns, With Nearly a Quarter Paying Two or More Points; Purchase and Cash-Out Most Impacted
Black Knight, Inc. (NYSE:BKI) released its February Mortgage Monitor Report, revealing a 64% increase in purchase rate locks in January, influenced by a decline in interest rates and home prices. Despite this rebound, purchase loans remain 13% lower than pre-pandemic levels. The report highlighted that 57% of borrowers utilized permanent rate buydowns, with an average payment of 1.25 points, significantly higher than the pre-pandemic average of 0.5 points. This reflects ongoing affordability challenges, as the monthly mortgage payment is over 40% higher than a year ago, and annual home price growth could turn negative if declines continue.
- 64% increase in purchase locks from January's first to fourth week.
- Average paid points for borrowers decreased from 2.03 to 1.25 points.
- Home prices have declined for six consecutive months, aiding affordability.
- Purchase loans remain 13% below pre-pandemic levels.
- Monthly mortgage payment is over 40% higher than last year.
- Potential for negative annual home price growth if current trends persist.
- While daily Optimal Blue rate lock data showed modest signs of an early-January rebound in purchase locks, refinance lending remains challenged despite a full percentage point rate decline since the
October 2022 peak - Purchase rate locks rose by
64% from the first to the fourth week of January, the sharpest such rise in the past 5 years; still, by the last week of the month, there were13% fewer January purchase loans locked than 2018/2019 pre-pandemic levels - In the third week of January,
57% of borrowers locking in rates paid at least a half-point as part of a permanent buydown,44% paid at least a full point, and nearly a quarter bought down their rates with 2 points or more - Such buydowns peaked in September-
October 2022 , when as many as 7 in 10 (71% ) borrowers paid points on permanent buydowns, and 4 of 10 (43% ) paid 2 points or more - Overall, borrowers paid an average of 1.25 points, down from a peak of 2.03 points last fall, at an average cost of
per borrower for the week ending$4,300 Jan. 21, 2023 , vs. for the week ending$6,900 Oct. 1, 2022 - For context, prior to the pandemic and resulting housing market boom, average points paid in 2018-2020 were closer to 0.5, with a corresponding cost of around
$1,500 - Purchase borrowers – who paid an average of 1.16 points in the week ending
Jan. 21, 2023 – now make up81% of new rate locks; cash-out refi borrowers (~14% share) paid nearly twice that, for an average of 2.06 points - Additionally, at least
3% of purchase borrowers received temporary buydowns, with 1/0s, 2/1s and 3/2/1s the most prominent market offerings, setting up some degree of potential for payment shocks down the road
"Based on our Optimal Blue rate lock data, we can see definite signs of a January uptick in purchase lending on lower rates and somewhat lower home prices," said Graboske. "Indeed, locks on purchase mortgages soared
"What we've seen in response to this challenging environment is greater reliance on permanent rate buydowns by borrowers. There have been murmurs and stories around temporary buydowns, but those remain a relatively small share of originations in general. In the third week of January,
This month's report draws further upon the Black Knight HPI – the timeliest and most granular in the industry – to look at
Much more information on these and other topics can be found in this month's Mortgage Monitor.
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