Overall rate lock volume took a slight hit in October, as reflected in the latest Optimal Blue Mortgage Market Indices report.
- The total rate lock volume index fell 1.6% from September, settling at 104, its third-highest level this year.
Driving The Drop: The rate lock volume dip can largely be attributed to a sharp fall in refinance activity. Rate/term refinance volume plummeted a staggering 45% month-over-month, fueled by the surge in the 30-year conforming rate, which jumped 65 basis points to close October at 6.79%. This marked a noticeable rate escalation, placing further pressure on refinancing appeal.
- Cash-out refinances bucked the trend, rising 5.6% from September, indicating homeowners’ preference to leverage home equity rather than refinance for better terms.
- Purchase volume experienced a near 12% increase from September, underscoring a strong demand for homeownership despite the challenging rate environment.
Conforming Majority: While conforming loans made up the majority of October’s volume at nearly 53%, the production mix is showing signs of adaptation to affordability pressures. FHA loans, known for more flexible credit and down payment requirements, accounted for 19.7% of volume, non-conforming loans made up 15.1%, and VA loans followed at 11.7%.
Credit Quality: Loan quality, measured by credit scores, held strong in October. The average credit score for purchase locks ticked up slightly to 739, signaling stable underwriting quality.
- Rate/term refis, on the other hand, saw a six-point dip in average credit scores, now at 730.
- Cash-out refis maintained an average score just below 700, with a one-point drop to 698.
Home Prices Rise: Amid the decline in rate lock volume, October also marked the second consecutive month of rising home prices, with the average purchase price climbing from $475,800 to $482,400. Meanwhile, the average loan amount decreased slightly to $380,100, down by $3,600 from September.
What They’re Saying: According to Brennan O’Connell, Director of Data Solutions at Optimal Blue, “Despite a tough rate trajectory, we saw strong growth in both purchase lock volume and counts, which are both positive signals for mortgage production. While purchase growth is encouraging, signs of how buyers are adapting to higher rates indicate continued affordability pressures.”
Bottom Line: Mortgage demand is officially off the lows, especially in the purchase sector, but rising rates continue to shape the market landscape. While October saw strong purchase volume gains, rate volatility could dampen momentum in the months ahead, testing affordability even further.
