The July 2024 ICE Mortgage Monitor Report, produced by Intercontinental Exchange, examines the changing makeup of the mortgage market.
The July report shows that while the mortgage market remains heavily skewed toward lower-rate mortgages, it is gradually shifting toward higher average rates. As of May, roughly 24 percent of homeowners with mortgages now have a current interest rate of 5 percent or higher. Just two years earlier, nine of every 10 mortgage holders were below that threshold.
“All in, there are 5.8 million fewer sub-5 percent mortgages in the market today than there were at this time in 2022. This has been a slow-moving change, as borrowers with lower rates have sold their homes or, to a smaller degree, refinanced to withdraw equity. The entire market is acutely aware of how elevated rates have been constraining origination volumes. But seen from another angle, the same dynamic is also serving to gradually enlarge the population of folks with high-rate mortgages, who are actively waiting for the moment a refinance makes sense. This would benefit both a growing number of homeowners and lenders,” Andy Walden, ICE’s vice president of research and analysis, said.
The report also revealed that 4 million first lien mortgages that have originated since 2022 have 30-year rates above 6.5 percent, with 1.9 million having rates of 7 percent or higher. On average, there are 240,000 active mortgages in each 1/8th of a percentage point bracket in the 7-7.625 percent range. However, there is a noticeable spike of 690,000 loans with rates just below 7 percent.
“The concentration of active loans just below 7 percent has more to do with borrower psychology than concrete savings. There’s clearly something appealing in today’s market for a homeowner to see a 6-handle in front of their mortgage rate. From a rate/term refinance lending perspective, this group is worth watching as they represent a potential tipping point for a return to more meaningful, albeit historically modest, refi volumes,” Walden said.
Further, refi volumes remain at a fraction of historical levels but there are notable shifts in who is taking out refis. For example, there has been a rise in VA market share, from less than 10 percent of rate/term refis a year ago to more than 30 percent in recent weeks. This seems to be due to, in large part, to the streamlined refinancing program to lower their interest rate by more than a full percentage point. Those lower payments come at a cost, however, as the average borrower increased their loan balance to buy down their rate and/or finance closing costs.
The recent activity among VA loans supports the findings of the recently released 2024 ICE Borrower Insights Survey, which showed that finding the lowest mortgage rate trumped all other concerns when choosing a lender. In fact, 84 percent of borrowers surveyed considered only one (36 percent) or two (48 percent) options before selecting a lender.