Optimal Blue: November Brings Long-Awaited Shift in Direction for Mortgage Rates

(Courtesy Optimal Blue)

Optimal Blue, Plano, Texas, released its November Originations Market Monitor, with data showing a 10% drop in lock volume month over month.

“November saw a welcomed reversal in the upward trend in mortgage rates that began in April,” said Brennan O’Connell, data solutions manager with Optimal Blue. “Yet despite the improving rate environment, lock volume was down 10% month over month, driven by a 12% drop in purchase locks as the market enters the slowest buying months of the year. However, many borrowers who took out loans over the last few months are finding themselves in the money for refinances, which drove refinance volume up 2% month over month to reach its highest level since February.”

This refinance climb included 10% month-over-month growth in rate/term refinance volume, while cash-out volume remained essentially flat from October. Purchase lock counts, which exclude the impact of changes in home prices, were down 13% year over year and 37% from pre-pandemic levels in 2019.

The Optimal Blue Mortgage Market Indices 30-year conforming rate dropped 67 basis points in November to finish the month at 7.11%. Jumbo rates fell 34 basis points to 7.61%, FHA dropped 54 basis points to 6.90% and VA dropped 61 basis points to 6.79%.

“Cooling economic indicators and dovish commentary from the Federal Open Market Committee meeting at the beginning of November drove a rally in rates across mortgage products,” O’Connell said. “This rally narrowed the spread between the Optimal Blue Mortgage Market Indices 30-year conforming rate and the 10-year Treasury by 16 basis points, pushing it down to 274 basis points – the lowest level since March.”

Optimal Blue noted nonconforming products including jumbo and expanded guidelines loans gave up share in November, dropping from 12% to 10% of total production month over month. FHA products lifted from 22% to 23% of total production month over month. Other products remained mostly flat in production, including GSE-eligible products at 56%, VA products at 10%, and USDA products at 1%. The rise in FHA share sets another recent high for the government-insured product. The steep drop in rates shifted production, pushing the ARM share down to 6.5% from 7.9% last month.

“Historic affordability issues are keeping buyers on the sideline and forcing sellers to reduce their expectations,” O’Connell added. “This may signal a downward trend in home prices after an extended period of steady growth.”