Rate lock volume rose going into the spring buying season

The spring homebuying season kicked off with a monthly jump in purchase mortgage locks despite rising interest rates. 

Rate lock volume rose 5% from January to February due to a notable 8.3% increase in purchase activity, data from Optimal Blue’s Originations Market Monitor report showed.

The rise in purchase activity outpaced the decrease in refinancing activity, which fell by 22.5% for rate-and-term refis and by 3.1% for cash-out loans. 

Overall, 86% of originations in February consisted of purchase mortgages, with refis accounting for 14%. 

Purchase lock counts, which control for changing home prices, rose 7% from January. It’s significant growth compared to the 2% increase in February 2023 during a similar uptick in interest rates, Optimal Blue reported.

On a year-over-year basis, purchase lock activity declined by 7%, marking the smallest such decrease since the Federal Reserve began hiking interest rates in March 2022.

“As the spring buying season commenced, we saw a resurgence in purchase locks, despite the rise in interest rates,” said Brennan O’Connell, director of data solutions at Optimal Blue. “Although lock counts were down on a year-over-year basis, the rate of decline is decelerating and suggests we may be nearing a floor for purchase lending in the current rate environment.”

The benchmark Optimal Blue Mortgage Market Indices (OBMMI) ended three consecutive months of rate declines — the result of strong economic readings, which significantly lowered market expectations of a near-term rate cut. 

The OBMMI 30-year conforming rate index increased by 36 basis points (bps) to 6.89%. The index for Federal Housing Administration (FHA) loans rose 28 bps to 6.66%, while the U.S. Department of Veterans Affairs (VA) index rose 41 bps to 6.50% and the jumbo index rose 37 bps to 7.35%.

Nonconforming loan products, including jumbo and non-QM loans, claimed an additional 183 bps of market share, ending the month with 11% of the total volume. Meanwhile, conforming loans maintained a steady share of 57%, with slight decreases in the FHA and VA loan shares.

The rate increase nudged up the share of adjustable-rate mortgages (ARMs), although they still account for only 6% of total production volume. The current economic scenario, particularly the inverted yield curve, is likely to constrain further growth in demand for ARMs, Optimal Blue projected.

Month over month, the average loan amount increased from $355,600 to $359,300, while the average home purchase price climbed from $444,900 to $454,100.