Potential Refi Market Cut in Half After Post-Election Rate Surge


The number of borrowers able to refinance a loan has been cut by more than half as a result of the post-election rise in interest rates, according to Black Knight Financial Services’ monthly Mortgage Monitor report.

Prior to the election, Black Knight calculated that 8.3 million borrowers could qualify for and benefit from refinancing. Now, that figure has shrunk to just 4 million borrowers as a result of a 49 basis point increase in mortgage rates after the election triggered a treasury bond selloff.

“While there are still two million borrowers who could save $200 or more per month by refinancing and a cumulative $1 billion per month in potential savings, this is less than half of the $2.1 billion per month that was available just four short weeks ago,” Black Knight Data Analytics Executive Vice President Ben Graboske said in a news release Monday. “And, since higher interest rates tend to reduce the refinance share of the market – specifically in higher credit segments – which typically outperform their purchase mortgage counterparts, they may potentially impact overall mortgage performance as well.”

The interest rate uptick didn’t just shrink the refi population — it also proved detrimental to affordability. Black Knight estimated that the jump in interest rates was comparable to the average home price rising by more than $16,400.

With the higher rates, the share of the median income needed to purchase a median-priced home nationally rose to 21.6%, the highest level since June 2010.

“The last time we saw affordability near this level – in late 2013 at 21.4% – home price appreciation experienced an immediate pullback, decelerating from nine percent to below 5% nationally,” Graboske said. “With that recent historical precedent, it’s worth watching to see how home prices react to such an abrupt rise in rates over the coming months, particularly as we await the Federal Reserve’s next moves on the benchmark federal funds rate.”

Black Knight also reported that overall originations rose 6% from the second to the third quarter, as a result of a 17% increase in repurchase lending. Total origination volume, which came it at $579 billion, was at the highest level since the second quarter of 2009.

Purchase volume remains 7% higher year over year, and year-to-date purchase loan origination volume is the highest for any first three quarters since 2007 at $818 billion. Black Knight cautioned though that purchase volume growth is starting to slow, particularly among high credit borrowers who fueled the recovery in purchase volume post-crisis.

Leave a Reply