Rate lock volume in October was flat compared with September; however, when adjusting for the extra business day, volume was down 4%, according to Optimal Blue’s latest Originations Market Monitor report.
Rate lock volume has been at record lows due to surging mortgage rates, which increased 26–40 basis points in October compared with September across various mortgage types.
The steep increase in rates has pushed more borrowers into ARM loans. The share of adjustable-rate locks increased to 7.9% in October, up from 6.8% in September, Optimal Blue says.
Both purchase and refinance volumes continued to wane amid multi-decade rate highs.
Conventional conforming volume fell to its lowest share of rate lock volume since March, while the FHA share hit its highest point since 2017.
Although production trended lower nationally, certain warmer or more temperate geographies – which are generally less susceptible to seasonality in purchase activity – saw month-over-month growth.
Both average loan amounts and purchase prices fell, while credit scores rose.
“Despite the Federal Open Market Committee’s decision to pause rate hikes, we saw rate headwinds continue in October,” says Brennan O’Connell, data solutions manager, Optimal Blue, in the report. “The mortgage rate spread to Treasurys also grew in October as investors sought safe haven assets amongst geopolitical concerns in Europe and the Middle East. The spread widened by 8 basis points to finish the month at 290 basis points.”
The report leverages daily rate lock data from the Optimal Blue product, pricing, and eligibility engine.
Rate lock dollar volume was flat in October, ticking up 0.5% month over month.
Purchase dollar volume rose 1%, but was down 3% after the same adjustment. Refinance dollar volume continued to wane in the face of multi-decade highs for rates, with cash-outs falling 3% and rate/term refinances dropping 6%.
Purchase lock counts – which exclude the impact of rising/falling home prices and, as such, better represent housing activity – were down 23% year over year, and down 43% from pre-pandemic levels in 2019. The refinance share of lock volume remained at current cycle lows of 12%.
“In October, we saw conventional conforming volume fall to its lowest point since March, dropping to 56% of total lock production,” O’Connell adds. “The lost market share was primarily picked up by FHA production, which rose to 22% of total volume. FHA market share is now at the highest level seen since 2017. Non-agency and VA production finished October at 11.5% and 10.3%, respectively.”
Although production continued to trend lower nationally, certain geographies experienced strong month-over-month growth in October. The Austin-Round Rock, Texas and Tampa-St. Petersburg-Clearwater, Florida metropolitan statistical areas (MSAs) both showed double-digit growth in lock volume from September.
Approximately half of the top 20 MSAs by volume showed lock production growth in October. This can generally be attributed to less seasonality in warmer and temperate climates.
The average loan amount fell from $353,200 to $352,500 in October, while the average purchase price fell to $449,000.
Credit scores rose slightly across agency production in October, with average credit scores for GSE-eligible locks ticking up 1 point, FHA locks up 2 points, and VA locks up 4 points.
Photo: Georg Bommeli