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Mortgage rate-lock data from analytics firm Optimal Blue suggests that, nationwide, prospective homebuyers are coming back to the market, setting the stage for another year of home-price increases.

“The new year kicked off with continued rate relief and a 36% month-over-month gain in total lock volume, driven by a seasonal 38% increase in purchase lock volume,” Brennan O’Connell, Optimal Blue’s director of data solutions, said in a statement. “We also saw the smallest year-over-year decline in purchase lock counts since May 2022, which may foreshadow a stabilizing market and friendlier lending environment in 2024.”

Rate locks are short-term agreements between a prospective, prequalified homebuyer and a lender that should the former find a home to buy, the latter will issue them a home loan at a certain interest rate.

In addition to the month-over-month climb in purchase lock volume, cash-out and rate/term refinance volumes rose 30 percent and 20 percent, respectively. The Optimal Blue Mortgage Market Indices (OBMMI) 30-year conforming rate dropped 4 basis points in January to finish the month at 6.53 percent after a mid-month peak at 6.7 percent. FHA and VA rates also fell in January, dropping 4 basis points and 3 basis points, respectively, while jumbo rates moved in the other direction with an 11-basis-point increase since year-end.

Mortgage rates fell despite a month-over-month 15-basis-point increase in the 10-year Treasury yield in January, leading to a 19-basis-point narrowing of the mortgage-to-Treasury spread. At approximately 250 basis points, the January spread reached levels unseen since mid-2022. While still elevated relative to historical averages, the spread has narrowed significantly since eclipsing 300 basis points on multiple occasions in 2023.

Conforming products gained market share to start the year, Optimal Blue said, rising 72 basis points to account for 57.3 percent of total volume. Non-comforming products – including jumbo and non-QM – rose 27 basis points to make up 9.7 percent of total volume. Ginnie Mae-eligible products moved inversely, however, with the FHA share dropping 87 basis points and the VA share falling 13 basis points, each representing 20.7 percent and 11.7 percent of total volume, respectively. The share of adjustable-rate mortgage products stayed consistent at just above 5 percent of total volume. Improving rate conditions and an inverted yield curve have limited the demand for ARM loans.

The rise in lock volume coincided with a January climb in average credit scores across all products and loan purposes.