Mortgage Interest Rate Sensitivity Triggers 25% Spike In May Rate-And-Term Refinance Activity

June 13, 2024 PROGRESS In Lending

Optimal Blue released its May 2024 Market Advantage mortgage data report, which revealed a 25.6% month-over-month (MoM) spike in rate-and-term mortgage refinances. The spike was a response to a modest drop in the Optimal Blue Mortgage Market Indices (OBMMI) 30-year conforming rate, which ended the month at 7.02%.

“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,” said Brennan O’Connell, director of data solutions at Optimal Blue. “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.”

Key findings from the May 2024 Market Advantage report, which are drawn from direct-source mortgage lock data, include:

Shallow dip in interest rates: The benchmark OBMMI 30-year conforming rate bottomed out on May 15 at 6.875% before ending the month at 7.02%, 22 bps lower than at the close of April. This reprieve in mortgage rates prompted a 25.6% MoM increase in rate-and-term refinance volume.
Overall volume increase: Total volume rose by 5.3% MoM and 1.8% year-over-year (YoY), driven by a 4.1% increase in MoM purchase lock volume, a 7.2% rise in cash-out refinances, and a substantial 25.6% increase in rate-and-term refinances.
YoY decline in purchase lock counts: Purchase lock counts, a key market health indicator that controls for home price appreciation and refinance volatility, were down 4% YoY. Despite the decline, May YoY purchase lock counts were stronger than the 7% YoY decline recorded in February, the last month unimpacted by the timing of the Easter holiday.
Coastal market growth: Major coastal cities saw the highest MoM volume increases, with East Coast cities New York, Boston, and Jacksonville and West Coast cities Riverside-San Bernardino, San Diego, Sacramento, and Portland each seeing volume gains of 13% or greater.
Stable, high credit quality: Average credit scores remained high, with the purchase borrower score averaging 738.
Stable loan amounts, rising home prices: MoM, the average loan amount remained flat at $374.5K. MoM, the average home purchase price rose for the fifth consecutive month this year, up $2.4K from $477.9K to $480.3K.