Optimal Blue: Locks Decline Due to Seasonal Purchase Declines; Rates Hit Multi-Decade Highs

(Illustration courtesy of Optimal Blue)

Mortgage rate lock volumes declined 20% in September, largely due to a seasonal decline in purchase activity and further rising interest rates, reported Optimal Blue, Plano, Texas.

“This continues a four-month trend of declining volumes,” the firm’s Originations Market Monitor report said. “Rates climbed to multi-decade highs in September, sitting at roughly a quarter point higher than they were in fall of 2022.”

Optimal Blue Interim CEO Scott Smith noted the refinance share of total lock volume ticked slightly higher from 12% to 13%, primarily because of seasonal purchase declines. “Cash-out volumes continue to be the lion’s share of refis at roughly double that of rate/term volumes, with virtually no mortgages in the money to refinance,” he said.

Total volumes were down 33% from the same time last year, the report said. Additionally, purchase lock counts – which exclude the impact of rising home prices – were down 32% year-over-year and 39% from pre-pandemic levels in 2019.

Conforming loans gave up share in September to all other product types, Optimal Blue said. While still making up the majority of production at 57%, conforming volumes are trending well below pandemic levels and have returned to the mid-50–60% range seen in 2018 and 2019. FHA and VA production both gained share, rising to 20.6% and 10.4%, respectively. The lock production share of nonconforming loans – including both jumbo and expanded guidelines – grew as well in September to 11.1% of the total.

“As the market reacted to the Fed’s ‘higher for longer’ message, we saw mortgage rates pushed to multi-decade highs in September,” Smith said. “We also continue to see average credit scores remaining high, suggesting tight credit availability and a relatively small cohort of buyers who can make a purchase in this historically unaffordable environment.”

The Optimal Blue Mortgage Market Indices 30-year conforming rate rose 33 basis points during the month to close at 7.41%, with FHA at 7.18%, VA at 7.00%, and jumbo loans up to 7.60%. Rates are now roughly a quarter point higher than the highs in fall 2022. The 30-year conforming rate spread to the 10-year Treasury narrowed 17 basis points, with the 10-year finishing September at approximately 4.6% – nearly 40 basis points above the highs set last fall.