Lower mortgage rates drive increased locks, including refis

January's continued lower mortgage rates translated to decidedly higher month-to-month lock activity across all three primary reasons for taking out a loan, including both cash-out and rate and term refinacings, Optimal Blue reported.

Overall, rate locks increased 36% from December, with purchase volume up 38%, the Originations Market Monitor report found.

While refinance activity remained near historic low levels, borrowers seeking to take equity out of their properties increased their locks by nearly 30%. The rise for rate and term refinancers was nearly 20%.

However, total refi activity was just 17% of rate locks, down 140 basis points from December but up 503 basis points over October and 166 basis points from January 2023.

"As a result of the end-of-year holidays and colder weather, December is traditionally the slowest month in purchase mortgage lending," Brennan O'Connell, director of data solutions at Optimal Blue, said in a statement. "Volume typically picks up in January and will continue to rise into the summer months."

On the purchase side, Optimal Blue found that January had the smallest year-over-year decline in lock counts since May 2022, "which may foreshadow a stabilizing market and friendlier lending environment in 2024," O'Connell noted in a press release.

On the other side of the equation, as he pointed out, "Refinance volumes are less seasonally dependent and driven primarily by rate movements."

Compared with January 2023, rate lock volume was 5.8% lower, with purchases down 7.7% and cash-out refis off by 12.2%. But rate and term refis were 39.6% higher.

The Market Volume Index, the calculation that Optimal Blue uses to measure rate lock activity, ended January at 77, the highest since September and October, when it also was at 77.

Broken down by component, the purchase MVI was 64, the cash-out was 8 and rate and term refi was 6.

A sign that mortgage rates had stabilized in January was the pick-up in conforming rate locks. Earlier last year, consumers were seeking low down payment government products because of the interest rate environment.

In January, conforming activity of over 57% of all locks was 72 basis points higher than December, while non-conforming rate locks made up almost 10% of the overall total, up 27 basis points.

Federal Housing Administration-insured loans had a 21% share, down 87 basis points, while Veterans Affairs mortgages made up 12% of locks, down 13 basis points.

But to give that last number some context, in December, when overall lock activity was down 23%, VA rate lock volume increased 137 basis points over November, which was attributed at the time to existing product holders seeking the agency's Interest Rate Reduction Loan.

Even with the improvement in rate lock activity, current market conditions remain difficult, with interest rate, affordability and inventory all constraining activity.

This resulted in lock volumes which are still down more than 60% from the comparable period last year, O'Connell said.

Even though the Freddie Mac Primary Mortgage Market Survey, which uses data from applications submitted to Loan Product Advisor, has been stuck in the same 10 basis point range since the week of Dec. 21, Optimal Blue's product and pricing engine tells a different story.

The 30-year conforming started February at just under 6.5%, data from the Optimal Blue PPE noted. But by Feb. 9, this product rose to just under 6.74%, moving more in step with the 10-year Treasury yield over that time.

"With rates picking back up in early February, it will be interesting to see whether the rebound in lock activity will hold," O'Connell said.