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December 2022 Mortgage Monitor

57% of Recent Borrowers Used Rate Buydowns, With Nearly a Quarter Paying Two or More Points; Purchase and Cash-Out Most Impacted

  • 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 were 13% 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 $4,300 per borrower for the week ending Jan. 21, 2023, vs. $6,900 for the week ending 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 up 81% 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

JACKSONVILLE, Fla. – Feb. 6, 2023 – Today, the Data & Analytics division of ICE released its latest Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records datasets. While both home prices and interest rates have come down from 2022 peaks – boosting purchase lending rate lock activity – affordability remains a significant challenge in the market. As Data & Analytics President Ben Graboske explains, one manifestation of this affordability challenge is the increasing trend of borrowers buying down their first lien interest rates by paying points up front.

“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 64% from the first through the fourth week in January. On the surface, it may seem the market has been stirred by a full point decline in interest rates and home prices coming off their peaks – but it’s not that simple. Yes, according to the ICE Home Price Index, December did see home values post their sixth consecutive monthly decline, and prices at the national level are now 5.3% off their June 2022 peaks. But affordability still has a stranglehold on much of the market, with the monthly mortgage payment on the average-priced home more than 40% higher than it was this time last year. It’s also important to keep January’s surge in purchase activity in perspective. While up, purchase locks were still running roughly 13% below pre-pandemic levels for the last full week of the month.

“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, 3% of purchase loans locked on Optimal Blue platform included a temporary buydown. Just over 2% involved 2-year temporary buydowns. In contrast, the third week of January, 57% of all borrowers who locked in rates paid at least a half point, 44% paid at least a full point, and nearly a quarter lowered their rates with buydowns of two points or more. If that seems high, consider that back in September and October of last year, as many as 71% borrowers paid points with 43% paying two or more points. Prior to the pandemic-era housing boom, borrowers in 2018-2020 paid 0.5 points with a corresponding cost of around $1,500 – as compared to $4,300 today and as high as $6,900 last fall. Purchase borrowers, who now make up 81% of new rate locks, paid an average of 1.16 points. For those looking to pull cash out of their homes, the cost was nearly twice that, with an average 2.06 points paid.”

This month’s report draws further upon the ICE HPI – the timeliest and most granular in the industry – to look at December 2022 home price trends, finding that the month’s -0.45% seasonally adjusted decline was roughly on par with the 0.48% average seen over the past six months. December’s decline pushed the annual home price growth rate down to just 5.0% – now only 0.4% above its 30-year average – and the slowest home price growth rate since June 2020. In 2022 overall, the first half of the year saw home prices grow by 10.9%, while the second half saw them drop by 5.3%. Should the current rate of monthly declines persist, the annual home price growth rate would go negative within the next three months. Recent monthly declines represent a -3.8% to -7.7% annualized decline and, as such, may provide insight into where the annual home price growth rate may be headed in coming months. Annualized monthly declines have historically served as a good leading indicator of upcoming movements in annual growth rates, which are themselves a backward-looking metric – particularly in a quick-moving and volatile market.

Much more information on these and other topics can be found in this month’s Mortgage Monitor.

About Mortgage Monitor

The Data & Analytics division of Black Knight manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

Black Knight’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.blackknightinc.com/data-reports/

About Black Knight

Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.

Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serving their customers. For more information on Black Knight, please visit www.blackknightinc.com.

About Mortgage Monitor

ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

ICE’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.icemortgagetechnology.com/resources/data-reports

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges – including the New York Stock Exchange – and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines and automates industries to connect our customers to opportunity.

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Media Contacts

Mitch Cohen
704.890.8158
mitch.cohen@bkfs.com​​​

Katia Gonzalez
678.981.3882
katia.gonzalez@ice.com