Rising mortgage rates cast a shadow over the market and made November a tough month for mortgage activity, according to the latest data from Optimal Blue.
Rate lock volume plunged 25% compared to October, reaching its lowest level since January. Rising mortgage rates dragged down all major categories of rate locks, from home purchases to refinances.
- Purchase rate locks dropped 21% and hit their lowest level since December, while cash-out refinances fell 20%.
- Rate-and-term refinances were hit the hardest, plummeting 50% to levels close to all-time lows.
Products: The affordability crunch also reshaped the mortgage product mix. FHA loans, which require as little as 3.5% down and offer more lenient credit requirements, gained market share for the second consecutive month. FHA loans rose by another three-quarters of a percentage point to account for 20% of total production, nearing their peak of 22% in November 2023.
- Conversely, conforming loans saw a slight decline to 52.7% of all originations, while VA loans experienced a sharper drop to 11.4%.
Mortgage rates were the primary driver of this slowdown. Although the 30-year conforming rate ended November at 6.68%—an 11-basis-point improvement from October—it averaged 30 basis points higher throughout the month.
- This persistent rise in rates reduced affordability for homebuyers and pushed many potential borrowers to the sidelines.
Home Prices: Unsurprisingly, this pressure on affordability pushed home prices down slightly. The average loan amount declined by nearly $4,000 to $376,400, while the average home purchase price dropped $5,000 to $477,400 in November.
What They’re Saying: “The rising percentage of FHA loans indicates affordability continues to be a concern among homebuyers as we move into year-end,” said Brennan O’Connell, director of data solutions at Optimal Blue. “In spite of the recent dip in purchase and refinance activity, we see the year-over-year improvements in purchase volume, cash-out, and rate-and-term refinances as a bright spot.”
Bottom Line: With rates still high and affordability pressures mounting, the mortgage market is bracing for a sluggish winter. While some signs of year-over-year improvement offer a glimmer of hope, the near-term outlook remains challenging as borrowers grapple with higher costs and tighter budgets.
