Mortgage lock volumes trend upward amid market uncertainty

Mortgage lock volumes surged by almost 7% in May, as borrowers dealt with ongoing rate volatility. 

Locks grew at a heightened pace of 6.78% in May, compared to 1.87% in April, according to secondary market services provider Mortgage Capital Trading. On a year-over-year basis, mortgage lock volume also leaped 19.84% last month

Among loan categories, rate-and-term refinances saw an 18.21% monthly jump, with cash-outs up by 4.99%. Purchase locks headed 6.54% higher. 

The increase in locks comes as mortgage borrowers continued to face unpredictable interest rate movements, which trended upward again this spring. Year-end 2023 forecasts provided a ray of hope for investors and a beleaguered lending market, with optimism pushing rates lower during the first quarter. But expectations were quashed as incoming economic data showed inflation staying longer than anticipated.  

The Federal Reserve has regularly cited a 2% inflation mark for lowering the benchmark rate banks lend to each other. The federal funds rate holds sway over where lenders set their levels. In April inflation grew by 3.4%, with May's numbers scheduled for release on June 12.     

"The next couple of months will be key from a data standpoint as the Federal Reserve looks for a trend of inflation heading towards the goal of 2%, said Andrew Rhodes, senior director and head of trading at MCT, in a press release.  

Volatility has been a running theme in the mortgage market over the past two years. Data, including the May government jobs report, seemingly raises more questions than answers over when the Federal Reserve might make moves that would lead to more market certainty. 

"Considering the nonfarm payroll number that just came out, setting a trend is going to take more time," Rhodes said.  

After lingering below 7% between January and March, the 30-year fixed rate moved back up above that mark beginning in April, according to Freddie Mac's weekly Primary Mortgage Market Survey. While it retreated in May, the rate crossed the threshold again in early June.

While lenders experienced greater locked volume, the May pace of growth came in more subdued compared to the start of 2023, when interest rates were declining. January saw an almost 14% increase, with February and March clocking in at approximately 27% and 15%, respectively.    

Meanwhile, Optimal Blue previously reported similar spring patterns, with rate locks tracking even higher in April – an 11% monthly increase compared to MCT's numbers. An annual increase in purchase locks, which was the first in over two years, also served as a possible sign of buyers returning to the market. 

May purchase application numbers from the Mortgage Bankers Association showed an overall drop in new originations.