Tightened credit compounds elevated interest rates, high prices.

A recent Mortgage Monitor report from Black Knight portrays the residential real estate market stuck in a vicious circle, as falling credit availability adds to the affordability crisis exacerbated by high interest rates and excessive home prices. As Andy Walden, Black Knight’s vice president of enterprise research, succinctly puts it, “in a sense, the gridlocked housing market has been feeding on itself.” “While elevated interest rates continue to weigh on both affordability and demand, they’re simultaneously constricting supply as well as would-be sellers who locked in ultra-low rates early in the pandemic and continue to sit on the sidelines,” Walden continued. “The combination of lower supply and demand in April led to both slowing sales and firming prices. In fact, while home sales dipped, April marked the fourth consecutive month of home price gains, which are now almost universally rising across the country again on a seasonally adjusted basis.” “In today’s market, interest rates are acting as a double-edged sword, reducing or increasing both demand and supply as they rise and fall, making it challenging to find a rate-driven path to easing affordability and home prices,” added Walden. Such onerous fundamentals are holding back the normally fervent spring housing market, compounded by the new spanner in the works in the form of tightening credit. According to Optimal Blue rate lock data from Black Knight, average credit scores and downpayments are both on the uptick. Additionally, Black Knight figures have April’s home purchase credit scores at their highest since at least 2000, when the company first began tracking the metric. Such credit rigidity has only encouraged the ongoing slowdown in purchase locks, which fell 11% from the week ending March 25 to the week ending May 20 — a statistic that should be trending the opposite way as the spring market heats up. Instead, after coming within 15% of pre-pandemic purchase-lock levels earlier in the year, locks have now slid back to more than 30% below that threshold.