MCT says August mortgage lock volume fell as rate-hike bets surged

Mortgage Capital Trading said August lock volume declined across most categories, while cash-out refinances rose, as hotter inflation data pushed markets toward a September Fed rate hike. Builder incentives continued to support purchase activity even as refinancing stayed weak.

Why it matters: - August’s mortgage lock data shows borrowers remained cautious as higher rates and sticky inflation pressured housing demand. - The rise in cash-out refinances points to households using home equity to cover short-term cash needs. - Builder-backed rate buydowns continued to support purchase lending, helping offset some of the slowdown.

What happened: - Mortgage Capital Trading released its September Lock Volume Indices, which track August rate-lock activity in the residential mortgage market. - Total lock volume fell 4.14% month over month. - Purchase locks declined 4.67% month over month. - Rate/term refinances dropped 11.66% month over month. - Cash-out refinances rose 4.76% month over month and were the only category to increase. - On a year-over-year basis, total volume fell 6.02%, purchase volume slipped 2.71%, and rate/term refinances were down 35.84%.

The details: - Andrew Rhodes, head of trading at MCT, said the cash-out increase stands out in the current rate environment. - Rhodes said borrowers needing cash may prefer a HELOC over a cash-out refinance, but the data suggests some households are still tapping home equity for lump-sum funds. - Rhodes linked the trend to household debt pressure, citing Federal Reserve Bank of New York data showing student loan delinquencies at 10.3% and credit card delinquencies at 12.8%, both multi-year highs. - August CPI held at 3.4% year over year, while core inflation ticked up to 2.4%, matching expectations and following a hotter PPI reading the day before. - Market-implied odds of a quarter-point Fed rate hike at Wednesday’s meeting rose to about 90% after the CPI report. - Those odds were 74% before CPI, about 60% a week earlier, and 44% a month earlier. - MCT said builder-financed borrowers locked at an average note rate of 5.514% in early September. - Non-builder borrowers locked at 6.731% on average, a gap of more than 120 basis points. - Rhodes said builders are subsidizing rates to keep buyers moving into homes, which is helping support the purchase market. - MCT said its Lock Volume Indices reflect lock activity across a broad mix of lenders and business models in its national footprint.

Between the lines: - The mix shift toward cash-out refinances suggests rate-sensitive borrowers are finding fewer attractive financing options. - The sharp repricing in Fed expectations shows how quickly inflation data can reset mortgage-market sentiment. - Builder incentives appear to be doing double duty: supporting affordability for buyers and cushioning a broader slowdown in purchase activity.

What's next: - The market is now focused on Wednesday’s Fed meeting and whether policymakers deliver a quarter-point hike. - If rates stay elevated, refinance activity is likely to remain under pressure. - Purchase demand may continue to depend on builder incentives and other rate-subsidy programs.

The bottom line: - Mortgage lock volume weakened in August, but cash-out demand and builder support show pockets of resilience even as the market braces for another Fed move.