Mortgage demand for new homes jumped in October as the inventory for existing homes remained depleted.

Mortgage applications for new-home purchases rose 39.7% in October on a year-over-year basis and were up 6% from the previous month, according to the Mortgage Bankers Association (MBA) Builder Application Survey for October. 

“Home builders have been able to temper this high-rate environment by offering buyers rate buydowns and other incentives,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “We estimate that the pace of home sales increased for the third straight month to a 715,000-unit annual pace — the strongest sales month since May 2023.”

FHA applications reached highest share of new-home applications since 2013

In October, FHA applications represented 26.3% of all new-home purchase applications as homebuyers turned to new construction for more housing options. This is the highest share of FHA new-home purchase applications in a decade.

Conventional loans made up 63.6% of new-home mortgage applications while VA loans comprised 9.8% of new-home loan applications in October.

The average loan size for new homes was $390,225 in October, down from $397,550 in September

According to MBA estimates, new, single-family home sales were at a seasonally adjusted annual rate of 715,000 units in October. That’s up 12.8% from the September pace of 634,000 units. On an unadjusted basis, MBA estimates that there were 55,000 new-home sales in October 2023, up 7.8% from 51,000 sales in September.

However, higher mortgage rates sank builder confidence again in October, which fell to 40. In September, the sales pace of new homes climbed 12.3% compared to August, reaching a seasonally adjusted annual rate of 759,000. The data for new home sales is scheduled for Nov. 27.

MBA’s survey tracks new-home mortgage application volume from mortgage subsidiaries of homebuilders across the country.