Mortgage rate lock volumes improved marginally in January after a December decline that transcended seasonal norms, which capital markets advisory firm Mortgage Capital Trading (MCT) had attributed to “protracted uncertainty” for cautious consumers at the time.
Overall lock volumes had slumped 19% from November to December but rose 8.7% through January, regaining around half of those losses. The uptick last month was largely driven by a roughly 50% monthly boost in rate-and-term refinance activity.
Andrew Rhodes, head of trading at MCT, had noted in December that combining winter seasonality “with the spillover effects of the longest government shutdown in history” led consumers to become more conservative when making large financial decisions.
“January’s numbers highlight just how weak December was,” said Rhodes on Thursday, reiterating the deleterious impact of the shutdown on consumer sentiment in commentary accompanying MCT’s monthly rate-lock report.
“It was a meager month, and now we’re seeing a modest rebound,” he explained, though consumers’ economic outlooks plunged even lower in January, according to recent reporting by The Conference Board, which saw its popular index contract to decade lows.
Nevertheless, in an era of persistently high costs across household expenses, any opportunity to shave a few dollars off monthly mortgage payments is being met with strong demand from candidates for refinancing, a bright spot amid slow purchase activity.
A rate lock is an agreement between a borrower and a lender that the interest rate on a loan will remain fixed during the loan processing period. When a borrower locks a rate, it ripples across the mortgage web, signaling that a loan application has crossed into closable territory.
Purchase rate locks that were about 7% higher on an annual basis in December were only about 2% higher annually in January, declining about 3% over the month. Total lock volumes were more than 40% higher in January than a year earlier, underscoring the longer-term recovery in loan volumes.
The latest figures from Freddie Mac show mortgage rates have hovered in a tight range just above 6% in recent weeks, near multiyear lows. A temporary breach of the 6% threshold occurred on Jan. 9, but average rates for 30-year fixed-rate mortgages stabilized back above 6% over subsequent weeks.
Further movements in mortgage rates largely depend on updates from the Trump administration on how it plans to execute the $200 billion in mortgage bond purchases proposed as a strategy to reduce mortgage rates, which economists have warned could increase mortgage capital markets volatility, raising mortgage rates in the long run.
For now, MCT continues to describe the market as being in a “holding pattern,” with meaningful improvement in lock volumes unlikely until 30-year mortgage rates “move decisively into the high-5% range.”
Federal Reserve officials voted to leave the benchmark federal funds rate unchanged last week. Rhodes noted in Thursday’s commentary that initial projections for a rate cut in the first half of 2026 are increasingly being pushed to the third quarter. The potential nomination of Kevin Warsh to replace Jerome Powell as Fed chair in May complicates the timing of cuts as well.
“This is a wait-and-see market,” said Rhodes. “January showed that activity can come back when sentiment improves, but it also showed how fragile that sentiment still is.”
