As the year 2024 came to a close, mortgage borrowers found themselves shifting their focus towards refinance opportunities rather than conforming mortgages. A recent report by Optimal Blue highlighted this trend, revealing that the conforming loan share had hit historic lows in December.
Optimal Blue, known for its Market Advantage reports that provide valuable insights into the U.S. mortgage market trends, utilizes lender rate-lock data from its product and pricing engine (PPE) to analyze key indicators. The December 2024 report showed a significant 26% year-over-year increase in mortgage lock volume, although it was down by 8% compared to November. This surge was driven by an 18% rise in purchase locks, a 43% increase in cash-out refinances, and an impressive 82% spike in rate-and-term refis.
In December, the rise in refinance activity diverted market share from other loan types, such as conforming loans. The share of refinance activity climbed to 24%, marking the highest level since September. A substantial 33% surge in rate-and-term refinances compared to November was a notable factor in this increase. Among the 20 largest U.S. metro areas, Los Angeles stood out with the highest share of refinance activity at 34%.
Reflecting on the data, Brennan O’Connell, director of data solutions at Optimal Blue, emphasized how the market adapted to changing conditions. He pointed out how the year-over-year growth in lock volume highlighted the demand for refinance opportunities in response to rate adjustments. The persistently low conforming loan share, hovering around 51% for the past five months, indicates a growing reliance on government and non-conforming loan options.
The conforming loan share saw a significant decline of 1.5% between November and December, reaching its lowest level of 51% since its tracking began in 2018. This shift away from conforming loan products, eligible for purchase by Fannie Mae and Freddie Mac, was likely influenced by rising interest rates. In December, the 30-year conforming rate rose by 16 basis points to 6.83%.
While conforming loans waned in popularity, Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and non-conforming loan options gained traction. FHA loans constituted 21% of all lock activity, followed by non-conforming loans at 16% and VA loans at 11.5%.
In terms of borrower credit health, average credit scores showed a steady increase throughout 2024. However, the average credit scores for purchase and rate-and-term refinance locks saw a slight decrease in the last month, reaching 737 and 727, respectively. On the other hand, the average credit score for cash-out refinance borrowers rose to 697.
Home prices moderated, resulting in the average loan amount staying stagnant at $376,900, while the average sale price decreased to $473,700. This data underscores the dynamic shifts in the mortgage market landscape and emphasizes the importance of borrowers exploring diverse mortgage options that suit their financial needs.
