More evidence is emerging that the recent decline in mortgage rates is prompting more borrowers to refinance.
In its July 2024 Market Advantage report released on Monday, mortgage technology firm Optimal Blue reported that refinance demand, measured by the level of locked loans, grew to its highest point since September 2022.
Data from HousingWire‘s Mortgage Rates Center shows that rates were in the midst of an upswing in September 2022, with the average rate for 30-year conventional loans at 6.88% at the end of that month. On Friday, 30-year conventional rates averaged 6.72%, a low point for 2024 and well below the peak of 7.58% in early May.
The Federal Reserve also influenced the trajectory of interest rates in the latter half of 2022, implementing three hikes of 75 basis points each in July, September and November of that year, followed by a 50-bps hike in December. The Fed hasn’t changed benchmark rates since July 2023, but a cut is universally expected next month.
According to Optimal Blue, the refinance share of the mortgage market grew to 17% last month, up 81 basis points from June and 472 basis points (bps) higher than in July 2023. Cash-out refi volume was up 5.9% while rate-and-term refi volume rose 12.3% on a monthly basis.
This dovetails with recent data from the Mortgage Bankers Association (MBA), whose seasonally adjusted refinance index showed a 16% weekly rise and a 59% yearly rise in refi application volume for the week ending Aug. 2.
Lower rates also had a positive impact on home purchase lending, Optimal Blue reported. Purchase locks rose 2.5% from June to July, although they were down 7% year over year. “This is a significant improvement over June’s 17% YoY decline, suggesting a potential stabilization in purchase demand as the market adjusts,“ the report read.
Overall, the number of locked loans moved 3.5% higher during the month.
Optimal Blue also noted that “the loan mix in July shifted toward agency production.“ Conforming loans through Fannie Mae and Freddie Mac grew their market share to 56.1%, up 18 bps from June.
Government loans through the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) also gained market share and now account for about 31% of the market. But non-conforming loans, including jumbo and non-QM products, saw their share shrink by 107 bps to 12.4% of the market.
Credit quality remained stable in July as the average credit score of 732 was unchanged from June. Average loan amounts decreased, however, “reflecting the shift away from non-conforming loan types,“ Optimal Blue explained. Loan sizes averaged $369,000 in July compared to $374,000 in June.
