There is growing evidence that the recent decline in mortgage rates is prompting more borrowers to refinance.
In its July 2024 Market Advantage report published on Monday, the mortgage technology company Optimal Blue reported that refinancing demand, measured by the amount of locked loans, rose to its highest level since September 2022.
Data from HousingWireThe Mortgage Rates Center shows that interest rates were in the midst of an upswing in September 2022, with the average rate on 30-year conventional loans at 6.88% at the end of that month. As of Friday, 30-year conventional rates averaged 6.72%, a low for 2024 and well below the high of 7.58% seen in early May.
The The US Federal Reserve also influenced the evolution of interest rates in the second half of 2022 by implementing three hikes of 75 basis points each in July, September and November of the same year, followed by a 50 basis point hike in December. The Fed has not changed interest rates since July 2023, but a cut is widely expected next month.
According to Optimal Blue, the refinance share of the mortgage market increased to 17% last month, 81 basis points higher than in June and 472 basis points (bps) higher than in July 2023. Cash-out refinance volume increased 5.9%, while rate-and-term refinance volume increased 12.3% on a monthly basis.
This is in line with recent data from Association of Mortgage Banks (MBA), whose seasonally adjusted refinance index for the week ending August 2 showed a weekly increase of 16% and a year-on-year increase in refinance application volume of 59%.
Lower interest rates also had a positive impact on lending for home purchases, Optimal Blue reported. Purchase guarantees rose 2.5% from June to July, although they fell 7% year-on-year. “This is a significant improvement from the 17% decline in June and suggests a possible stabilization in purchase demand as the market adjusts,” the report said.
Overall, the number of blocked loans increased by 3.5% during the month.
Optimal Blue also noted that “the loan mix shifted toward agency production in July.” Conforming loans through Fannie Mae And Freddie Mac increased their market share to 56.1%, an increase of 18 basis points compared to June.
State loans through the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) also gained market share and now accounts for about 31% of the market. However, for non-conforming loans, including jumbo and non-QM products, its share shrank by 107 basis points to 12.4% of the market.
Credit quality remained stable in July, as the average credit score of 732 remained unchanged from June. However, average loan amounts decreased, “reflecting the shift away from non-conforming loan types,” Optimal Blue explained. The average loan size was $369,000 in July, compared to $374,000 in June.
