The July 2024 ICE Mortgage Monitor report, produced by the Intercontinental Exchange, examines the changing composition of the mortgage market.
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The July report found that while the mortgage market remains heavily skewed toward low-interest mortgages, average rates are gradually shifting toward higher rates. As of May, about 24 percent of homeowners with mortgages currently have interest rates of 5 percent or higher. Just two years ago, nine in 10 mortgage holders were below that threshold.
“Overall, there are 5.8 million fewer sub-5% mortgages on the market today compared to the same period in 2022. This is a slow change as low-rate borrowers sell their homes or, to a smaller extent, refinance to extract equity. The market as a whole is feeling the pain that rising interest rates are suppressing lending volume. But from another angle, the same dynamics are also helping to gradually increase the population of people with higher-rate mortgages who are actively waiting for the moment when it makes sense to refinance. This will benefit both the growing number of homeowners and lenders,” said Andy Walden, vice president of research and analytics at ICE.
The report also found that 4 million first-lien mortgages originated after 2022 have 30-year interest rates above 6.5%, and 1.9 million have rates above 7%. On average, there are 240,000 active mortgages for every 1/8th of a percentage point in the 7-7.625% range. But there is a notable spike of 690,000 loans with interest rates just below 7%.
“The concentration of active loans below 7 percent has more to do with borrower psychology than tangible savings. In today's market, mortgage rates rising into the 6 percent range are clearly attractive to homeowners. From a rate/term refinance lending perspective, this group is worth watching as it could be an inflection point in a return to more meaningful, albeit historically modest, refinance volumes,” Walden said.
Additionally, while refinance volumes remain at a fraction of historical levels, we are seeing a notable shift in who is using them. For example, the VA's market share of interest rate/term refinances has grown from less than 10% a year ago to over 30% in recent weeks. This is likely due in large part to streamlined refinance programs that have lowered interest rates by more than a percentage point. However, these lower payments come at a cost, as the average borrower is increasing their loan balance to lower interest rates and financing settlement costs.
Recent trends for VA loans support the findings of the recently released 2024 ICE Borrower Insights Survey, which shows that finding the lowest mortgage rate trumps all other concerns when choosing a lender. In fact, 84% of surveyed borrowers considered only one (36%) or two (48%) options before selecting a lender.