WASHINGTON, DC — Higher borrowing costs kept refinance demand weak in August, extending a slowdown that has been in place since April. New mortgage lock data from Optimal Blue shows that purchase loans continued to make up the bulk of activity even as overall mortgage production eased.
The 30-year fixed conforming mortgage rate finished August at 6.72%, unchanged from July and nearly a quarter-point above the same month a year earlier. With rates still elevated, lenders saw fewer refinance borrowers step forward, while home purchase demand remained the steadiest part of the market.
Purchase loans remain the largest share of mortgage locks
Purchase lock volume fell 10% from July, but it was still 6% higher than a year earlier. That left purchase loans at about 81% of total lock volume in August, the fourth straight month in which they accounted for roughly four out of every five mortgage locks.
Even with the monthly decline, purchase demand has been the more resilient part of the market. Brennan O’Connell, director of data solutions at Optimal Blue, said purchase activity is still ahead of last year and added that there is not much refinance demand supporting broader mortgage activity.
On a three-month trend basis, purchase locks were down more than 12%, showing that the summer slowdown affected buyers as well, even if not as sharply as borrowers looking to refinance existing loans.
Refinance activity keeps sliding after spring pressure
Rate-and-term refinance locks fell 13% from July and were down 47% from a year earlier. Cash-out refinance volume also moved lower, slipping 3% month over month and 5% year over year.
Refinance share did edge up 40 basis points in August, but that small gain did little to change the overall picture. Elevated rates have made refinancing less attractive for many homeowners, especially for borrowers who locked in lower rates before the recent climb.
That weakness is significant because refinances had made up 44% of total mortgage production in the first quarter, according to ICE Mortgage Technology. Since then, higher borrowing costs have cut deeply into demand.
The summer slowdown deepened as mortgage rates moved higher
Overall rate locks were 9% lower in August than in July and 3% below the level from a year earlier. The monthly drop marks a deeper pullback that began in July, when mortgage rates started to ratchet higher in the middle of summer.
Earlier in the year, total lock volumes had been 15% higher than a year earlier in June. By August, the market had clearly lost momentum, suggesting that the combination of higher rates and weaker refinance demand had begun to weigh more heavily on mortgage production.
Optimal Blue said its rate-lock data covers about one-third of the U.S. mortgage market, giving the monthly figures broad though not complete visibility into lender activity.
Conforming loan share falls below half of the market
The share of locks tied to conforming loans eligible for Fannie Mae and Freddie Mac fell again in August and stayed below 50% for the fifth straight month. Conforming loans accounted for 46.9% of lock activity, down about 195 basis points over the past three months and 410 basis points from a year earlier.
That decline points to a market that is continuing to shift away from the conventional conforming segment. As the conforming share fell, nonconforming loans held just under 21% of total lock activity in August.
Within that nonconforming category, more than 11% of all commitments were for non-qualified mortgages, or non-QM loans, which are typically used by borrowers who do not fit standard underwriting rules.
Investor and bank statement loans play a bigger role in non-QM lending
Optimal Blue said investor and debt-service coverage ratio, or DSCR, loans made up about 35% of non-QM production in August, up 1.7% from July. Bank statement loans accounted for roughly 30% of non-QM locks.
Those numbers show how much of the non-QM market continues to be driven by borrowers with nontraditional income or property-based repayment profiles. Investor and DSCR locks were 573 basis points higher on a three-month basis, while bank statement locks were 220 basis points lower over the same period.
The shifting mix suggests that some lenders and borrowers are leaning more heavily on specialized loan products even as standard refinance demand remains weak.
Average loan size dips as borrowing activity cools
The average locked loan amount fell about 1.8% in August to $388,000 from $395,000 in July. That drop fits the broader cooling trend seen across mortgage activity as rates stayed elevated and overall lock volume moved lower.
While the data do not break down the change by region, the combination of smaller average loan amounts, weaker refinancing, and softer overall production points to a market still adjusting to higher financing costs. For lenders, the August figures show a business mix increasingly driven by purchases rather than refinance volume.
For borrowers, the numbers underscore how quickly rate pressure has changed the shape of mortgage demand since spring.
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