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Rate-and-term refi locks jump 25.6% in May: Optimal Blue

It suggests homeowners with rates above 7% feel pinched and are sensitive to even modest rate movements

Rate-and-term refinances rose 25.6% in May as mortgage rates trended down, according to a new report by Optimal Blue. The spike was a response to a modest drop in the 30-year conforming mortgage rate, which dropped to 6.8% on May 15 but ultimately ended the month at 7.02% on the Optimal Blue Mortgage Market Indices (OBMMI).

“The sharp increase in demand for rate-and-term refinances following a dip in rates indicates that homeowners with rates above 7% feel pinched and are sensitive to even modest interest rate movements in the current economic landscape,” Brennan O’Connell, director of data solutions at Optimal Blue, said in a prepared statement. “For context, since Optimal Blue began tracking the 30-year conforming rate as a market index in January 2017, interest rates only exceeded 7.02% on 120 market days. Based on other measures, buyers who locked loans on those days have the highest mortgage rates of the past two decades.”

Screenshot-2024-06-13-at-1.24.34 PM
Chart courtesy of Optimal Blue

Total volume rose by 5.3% in May month over month and 1.8% year over year. Such gains were driven by a 4.1% increase in month-over-month purchase lock volume, a 7.2% rise in cash-out refinances, and the big rise in rate-and-term refinances. There was, however, a year-over-year decline in purchase lock counts, a “key market health indicator that controls for home price appreciation and refinance volatility, were down 4% year-over-year.”

Despite the 25.6% monthly increase from April, rate-term refinances remained at a value of 6 on the market volume index (total volume indexed to 100 in January 2018). Cash-out refinances were 9 and purchase mortgages registered at 94.

Conforming loans were 57.2% of the pie, with FHA at 18.4%, VA at 10.8% and nonconforming loans at 13.0%, according to Optimal Blue data.

The purchase pull-through rate was 79.9% in May, down 184 bps from April. The refinance pull-through rate was 59.4% in May, down 115 basis points from April and 295 bps from February. In May 2023, the refi pull-through rate was about 65%.

Nationally, markets in the Northeast showed the largest increase in lock volume, according to Optimal Blue. The Boston-Cambridge-Newton, MA-NH metro had a 17.8% increase in rate locks and the New York-Newark-Jersey City metro wasn’t far behind at 16.4%.

The Washington, D.C., Dallas, Denver, Miami and Phoenix metros all showed declines in lock volume in May.

Screenshot-2024-06-13-at-12.58.07 PM
Chart courtesy of Optimal Blue

The average loan amount in May remained flat at $374,500 and the average home purchase price rose for the fifth consecutive month to $480,300 from $477,900.

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