According to a report from Optimal Blue Market Advantage, mortgage purchase activity slowed in June, while lower interest rates led to a 39% month-on-month increase in loan volume for rate and term refinances.
Consumers with mortgage interest rates that were higher than current market rates were quick to take advantage of the situation.
“Many homeowners with higher interest rates, especially those who paid off their mortgage within the past 12 to 18 months, jumped at the opportunity to refinance in order to get even a small reduction in their monthly payment,” Brennan O'Connell, director of data solutions at Optimal Blue, said in a press release. “This behavior speaks to the inventory and homebuying challenges consumers currently face.”
According to Freddie Mac's Primary Mortgage Market Survey, interest rates on 30-year fixed loans fell from 7.03% on May 30 to 6.86% on June 27. By July 3, they had risen to 6.95%.
The interest rate tracker from Optimal Blue's product and pricing engine hit its lowest point for the month on June 13 at 6.810%, and ended the month at 6.938%, eight basis points lower than the closing rate in May.
Despite the surge in interest rate and term refinancing, that didn't change the fact that the sector remains sluggish for mortgage lenders.
Cash-out refinance volume increased 11%, while purchase volume was down 1%. This data is adjusted to account for fewer trading days in June than in May.
The average loan amount fell by $300 to $374,200.
On an unadjusted basis, mortgage rate fix volume fell 12% in June compared to May. When Optimal Blue takes into account the reduced number of days on the market, fix volume increased 2%.
The decline in unadjusted data was primarily due to a 14.9% drop in committed purchase activity compared to May, according to Optimal Blue's Market Volume Index, for a 14% annual decline.
Interest rates and fixed term interest rates increased 19.8% from the previous month and 81.2% from June 2023.
The number of cash-out products locked was down 4.5% compared to May, however this activity was in line with the same month last year.
Across all forms of refinancing, market share increased to 16% from 13% in the previous month.
Mortgage Capital Trading, another source of interest rate fixing data, saw 7.84% lower activity compared to May.
According to Optimal Blue, conforming mortgage volume fell 130 basis points in June, from 57.2% to 55.9%. The share of non-conforming mortgages increased slightly from 13% to 13.5%, while Federal Housing Administration activity remained steady at 18.4%. The Department of Veterans Affairs' share rose to 11.7% from 10.8%, while USDA program activity fell from 0.6% to 0.5%.
Homebuying activity will determine how successful the rest of the year will be for mortgage lenders.
“As we look to the second half of 2024 and possible interest rate easing by the Fed, the purchase lock count will provide insight into whether and when production might turn around,” O'Connell said.