Purchase locks rebound, setting stage for fall season

Rate-and-term refinance mortgage locks grew over 600% annually in September, but a much smaller increase in purchase loan activity is even more noteworthy, Optimal Blue said.

Overall lock volumes were up 6% from August and 36.5% from a year ago, according to its latest Market Advantage report.

"Refinance production has been trending higher for a few months now as mortgage rates rallied, but purchase activity had been stubbornly stagnant," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release. "However, September volumes indicate the tide may be turning."

That is because last month was the first since the Federal Reserve began raising short-term rates that purchase locks increased on a year-over-year basis other than April, which was affected by the timing of the Easter holiday, O'Connell said.

"As we move into Q4, this is a very encouraging sign that the market may have found a floor and production is on the upswing," O'Connell continued.

However, other indicators, including Fannie Mae's Home Purchase Sentiment Index, are showing consumers remain leery about buying a house right now.

The Market Volume Index, which Optimal Blue measures rate lock activity by, was 105 in September, versus 99 for August and 77 from the same month in 2023.

It was the best month for lock activity since May.

Purchase locks were up 6.1% compared with last September, but down by 3.3% from August.

Meanwhile, rate-and-term refinance locks rose 644.2% annually and 49.4% compared with the previous month. The cash-out variety grew 54.7% and 6.4% respectively.

Refinancings made up 32% of the market in September, up from 26% in August. However, the immediate aftermath of the Fed's 50 basis point short-term rate cut has had limited impact on mortgage rates, likely keeping a fair number of recent mortgage borrowers from returning to the market just yet.

The good news is that signs of an inventory increase have sprouted. Total inventory was up 30.5% in September compared with 2023, as net new listings were up by 6.3%, while the number of properties under contract were down by 1.3%, HouseCanary said.

This is a sign that the market is gradually returning to a more balanced state, HouseCanary CEO Jeremy Sicklick said in the company's report.

Normally, the fourth quarter is typically weaker than the second and third quarters for mortgage activity, especially purchases.

"While we continue to see the hallmarks of a seller's market, particularly in higher price tiers, the consistent increase in inventory and contract volumes suggests that the market is beginning to stabilize after years of volatility," Sicklick explained. "If these trends persist, we may see an even more pronounced shift as we move further into the fall season."

By product type, conforming loans made up 54.4% of volume, Optimal Blue said. Nonconforming was at 12.6%. Federal Housing Administration-insured mortgages had an 18.7% share, while Veterans Affairs-guaranteed loans made up 13.7% of September's market.

The remaining 0.6% consisted of U.S. Department of Agriculture mortgages.