Housing MarketMortgageReal Estate

Mortgage applications for new homes down in September

Average loan size increases as cost of building a new home rises

Purchase mortgage applications for new homes were down 16.2% in September compared to a year ago, according to Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data released on Tuesday. This is also marks a 4% decrease from the prior month.

Based on data from the survey, MBA estimates that there were 66,000 new single-family home sales in September, compared to 71,000 new single-family homes a month prior, a 7% decrease.

The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors. 

“New home sales purchase activity was weaker in September, and the average loan size rose to another record high, as homebuilders continue to grapple with rising building materials costs and labor shortages. The survey-high average loan size of $408,522 is evidence of higher sales prices from these higher costs, as well as the shift in new construction to larger, more expensive homes,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement. “The estimated pace of new home sales decreased 3.5% last month after a strong August reading, but the two-month sales pace is at its strongest since January 2021.”

Despite the weaker sales purchase activity, the latest National Association of Homebuilders (NAHB) and Wells Fargo Housing Market Index (HMI) report found that homebuilder confidence rose four points in October 2021. The index also rose one point in September following a three month decline. This increase in confidence comes as homebuilders have become increasingly concerned about affordability due to ongoing material and labor shortages.

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Despite a better-than-expected performance in August, new housing starts for single family homes remained flat in September, as strong demand helped off set increased costs, echoing the slowdown in mortgage applications seen in BAS date.

When looking at loans by product type, conventional loans made up 75.1% of all loan applications, FHA loans represented 13.9%, VA loans composed 10.5% and RHS/USDA loans made up the final 0.5%.

MBA’s BAS tracks application volume from mortgage subsidiaries of home builders across the country and utilizes the data to provide an early estimate of new home sales volumes.

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