The refinancing volume in July amounted to 17% of fixed interest rates, the largest activity in almost two yearsaccording to Optimal Blue, but daily reports from early August indicate an even higher proportion.

For August 8, the most recent date available from the product and pricing engine provider, refinancings were 27.5% of lock activity, 149 basis points lower than the previous day.

Mortgage rates were already trending downward before the August 2nd jobs report sent the market into turmoil. This led Freddie Mac’s Primary Mortgage Market Survey for August 8 is expected to fall 26 basis points to 6.47%.

On August 9, the interest rate on the 30-year fixed bond on Optimal Blue’s website was 6.5 percent. This was only the third time since May 15, 2023 that the interest rate was at or below this level. The other times this happened were on February 1 and August 6.

On August 12, the yield on the 10-year U.S. Treasury note was 3.94%, unchanged from August 9 and almost 6 basis points lower than August 8. However, that was up from 3.67% on August 5, the day markets reacted to the employment report.

Lower interest rates contributed to blocking the activity of all species grow in Julyas the report “Optimal Blue Market Advantage” shows.

The Market Volume Index, a measure of interest rate activity, has risen by 3.5% since June, with the largest increase in interest and term refinancing volumes of 12.3%.

Cash-out refinances that benefited lenders Incorporating more of these offers into their menusgrew by 5.9%, while purchase restrictions increased by 2.5% compared to June.

General Activity was unchanged compared to July 2023only an increase of 0.6%, but interest and term refinancing almost doubled and the volume of disbursements increased by 11.8%. However, compared to the previous year, purchase guarantees decreased by 4.8%.

“The decline in the Optimal Blue Mortgage Market Indices 30-year conforming rate to 6.67% (for the month) played a significant role in this growth, and we observed the highest refinance activity since September 2022,” said Brennan O’Connell, director of data solutions at Optimal Blue, in a press release. The average interest rate on the 30-year fixed-rate mortgage in September 2022 was just one basis point higher.

The increase in refinancing locks follows a separate report from ICE Mortgage Technology that found the number of borrowers in money to refinance 2.4 million homeowners As of August 5, the highest number since April 2022.

(Until September 2023, Optimal Blue was a subsidiary of Black Knightwhen the latter was forced to sell it to Constellation Software as part of its own acquisition by ICE Mortgage Technology’s parent company.)

While increased refinancing activity is beneficial for consumers, higher prepayment speeds impact both the secondary market and mortgage servicers.

A Bank of America Securities report, citing both its own data and data from Optimal Blue, said lenders offered average interest rates of 6.40% for purchases, 6.30% for interest-only refinances and 6.60% for cash-out refinances as of August 5.

“These rates represent declines of 50, 80 and 55 basis points, respectively, from early July levels,” said BofA Securities analysts Jeana Curro, Chris Flanagan, Ge Chu and Leiyuan (Leslie) Wang in their Aug. 9 note on mortgage-backed securities. The analysts noted the increase in daily rate-fixing activity during the week, adding that “these volumes could materialize as early as this month, but we think the impact is more likely to be most visible in September.”

BofA revised its prediction of when the Federal Open Market Committee would cut interest rates. At the Mortgage Bankers Association’s Secondary and Capital Markets Conference in May Curro said the first cuts would come at the December meeting.

The Fed has now joined those who expected more and earlier rate cuts, the report said. The Fed will now cut rates at the September meeting. That is still more conservative than other market observers who are forecasting four to five rate cuts this year due to last week’s turmoil, BofA said.

BofA cites several reasons why it expects refinancing activity to increase in the near future. First, interest rate and term refinancing are “easy targets” for lenders, while employment in the industry has declined, is still high, measured by the employee/credit metric.

Then new homebuyers entered the market with the “buy now, refinance later” mentality, and now, for many of them, their much-anticipated first opportunity has arrived.

“Thirdly: Increase in May 2023 (adjustment of credit prices) has created additional costs for refinances that may have driven them forward more slowly than base rate levels suggest,” the BofA report said. “There has been much talk that conventional premiums continue to lag behind model estimates. Nevertheless, we believe that higher refinance fees are amplifying pent-up refinance demand and that, if sustained, it will take measurable upswings like the recent ones to spur truly meaningful prepayments.”