Boost in rate locks signals that buyers are back

The number of rate locks for purchase mortgages increased on a year-over-year basis for the first time since the Federal Reserve started hiking short-term rates in March 2022.

Optimal Blue's Market Volume Index for April, which measures rate locks by dollar volume, was 103 for all product types, up 8.7% from March and 10.3% over April 2023.

The purchase portion of the index was 90 points, an 11% increase from last month, and 10.8% compared with one year prior, its Originations Market Monitor found.

By the number of loans consumers elected to lock during the month (also known as lock count), purchase volume increased by 5% versus April 2023. The difference between the increase in the MVI and in lock counts was likely a result of rising home prices.

Much of April's increase in locks reflects home buying and mortgage application activity during March.  March was the fifth consecutive month that annual home price increases were above 5%, at 5.3%, according to CoreLogic.

"Purchase lock counts are a key market indicator as they control for changes in home prices and more volatile refi activity, so the year-over-year increase in April is a particularly encouraging sign that mortgage production may be turning a corner," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release. "While we are cautiously optimistic, May figures will provide further confidence in the positive trend, as April 2024 numbers got a boost from the Easter holiday landing in March this year."

April was the best month for both the total and purchase MVIs since last June at 105 and 93 respectively.

But while the purchase market was on the upswing, likely helped by a boost in the inventory of homes for sale, rising mortgage rates during the month further depressed the refinance business. The 12% share for this loan purpose brought it back to a level reached last summer. Compared with March, the refi share was down 176 basis points, and it was 46 basis points lower than it was for the same month a year ago.

Rate and term refis had an MVI of 4, down 13.7% from March, although it was up 13.2% compared with April 2023.

Cash-out refis remained more popular as rates rose back above 7%, as that product is more need driven. The MVI of 8 was 0.8% higher than for March and 2.9% higher than for April 2023.

Another sign of the influence of home prices was the fact that nonconforming rate locks were the only product to increase its share during April both versus the prior month and the previous year.

Nonconforming mortgages made up 13.7% of all rate locks, up 185 basis points from March and 214 basis points from April 2023.

During the same period, conforming mortgage locks had the largest share at 56.8%, but that was down 83 basis points from a month ago while up by just 8 basis points over one year prior.

For March, the Mortgage Bankers Association reported a 2.6% gain in jumbo product availability, although that slipped to a 0.3% rise one month later.

Federal Housing Administration-insured mortgages had an 18.4% share of locks in April, down 58 basis points from March and 114 basis points from April 2023, while Veterans Affairs-guaranteed loan share of 10.6% was 34 basis points lower and 97 basis points lower respectively.

The U.S. Department of Agriculture's mortgage program had just a 0.5% share, down by 10 basis points and 11 basis points respectively.

Using data from its product and pricing engine, Optimal Blue calculated the 30-year fixed conforming ended April at 7.24%, 51 basis points higher than March and 80 basis point over where it was one year prior.

Jumbo mortgages ended April at 7.4%, 32 basis points higher than one month prior and 91 basis points above the year ago level, while FHA loans were at 6.91%, 34 basis points and 53 basis points higher respectively.