FHA loans become more popular with homebuyers facing affordability challenges
Mortgage lock activity dropped sharply in November 2024, with volumes falling 25% month-over-month (MoM), according to Optimal Blue's latest Market Advantage mortgage data report.
Despite the decline, year-over-year (YoY) comparisons highlight market resilience, with total lock volume up 12% compared to November 2023. Purchase locks rose modestly by 5% YoY, while cash-out and rate-and-term refinance activity surged by 35% and 95%, respectively.
Rising interest rates remained a significant factor in November's slowdown, with the OBMMI 30-year conforming fixed rate ending the month at 6.68%, a slight 11-basis-point (bps) decline from October. FHA and VA loan rates saw minor decreases, falling by 7bps and 20bps, respectively. However, the 30-year jumbo rate rose by 16bps to close the month at 6.98%.
Purchase lock volume dropped 21% MoM in November, reflecting a challenging affordability landscape. On a YoY basis, purchase lock counts—which exclude home price appreciation (HPA) and refinance volatility—fell by 3%, marking a break in the two-month streak of positive YoY momentum.
Refinance activity experienced significant MoM declines. Cash-out refinances dropped 20%, while rate-and-term refinances plummeted by 50%. However, YoY gains in both categories provided a silver lining, with cash-out refinances up 35% and rate-and-term refinances up an impressive 95%.
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Affordability concerns drove a shift in loan product preferences. FHA loans gained market share, climbing to 20% of total production – near their November 2023 peak of just over 22%. VA loans, while slightly down MoM, maintained an 11% share and showed YoY growth.
Conforming loans continued to lose market share, falling below 53%, while non-conforming loans, including non-QM and jumbo options, held steady near their recent high of just under 15%.
“The rising percentage of FHA loans indicates affordability continues to be a concern among homebuyers as we move into year-end,” Brennan O’Connell, director of data solutions at Optimal Blue, said in the report. "In spite of the recent dip in purchase and refinance activity, we see the YoY improvements in purchase volume, cash-out and rate-and-term refinances as a bright spot.”
The average loan amount fell from $380,100 in October to $376,400 in November. Similarly, the average home purchase price dipped slightly, decreasing from $482,400 to $477,400, indicating modest cooling in home prices.
Credit scores for purchase loans held steady at an average of 739. Refinance loans saw minor credit score reductions, with cash-out refinances averaging 695, down two points, and rate-and-term refinances averaging 730, a decrease of one point.
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