Mortgage applications for new homes dropped 9% in April from March, however, overall applications are still up a whopping 30.8% year over year for homebuilders, according to the latest survey report from the Mortgage Bankers Association.
Amid continued competition from borrowers, the average loan size of a new home reached its highest level in the survey’s history at $377,434.
“Adjusting to seasonal effects, MBA estimates that new home sales in April rebounded from a two-month slump, increasing 8 percent to an annualized pace of 770,000 units,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “While still strong, this sales pace remains below the 877,000-sales pace seen in the second half of 2020.”
By loan type, conventional loans backed by Fannie Mae and Freddie Mac took the lion’s share at 72.9% of loan applications, followed by just 15.8% of FHA loans, 10.3% from VA and 1% leftover for RHS/USDA loans.
“The purchase market remains strong overall, but low housing inventory and accelerating home prices have started to adversely impact purchase activity,” said Kan. “Additionally, homebuilders have reported significantly higher input prices, which is contributing to the ongoing rise in sales prices and average loan sizes.”
Housing affordability weakened slightly during the first quarter of 2021 with signs of overheated prices and bottleneck supplies snowballing into April. Roughly 63% of new and existing homes sold between the beginning of January and the end of March were affordable to families earning the U.S. median income of $79,900 — down slightly from the 63.3% of homes sold in the fourth quarter of 2020 that were affordable to households earning the median income of $78,500.
A recent study by the National Association of Home Builders found that regulations imposed by all levels of government on new homes account for $93,870, or 23.8%, of the current average sales price ($397,300).
Of that $93,870, $41,330 is attributable to regulation during development, and $52,540 is due to regulation during construction. Lumber prices alone have tripled over the past year and have added a massive $35,872 to the average price of a new home.
But incentive is still there as borrowers scramble to take advantage of an obscure month of rates hovering below 3% and that new home smell. In March, Redfin reported almost two-thirds (63%) of people who bought a home in 2020 made an offer on a property they hadn’t seen in person, up from 32% a year earlier and the highest share since at least 2015.
Lenders are also loosening credit, giving borrowers even more of a chance to grasp at the straws that remain on the market. The MBA’s mortgage credit availability index increased in April to 128.1 on a benchmark of 100, suggesting that standards are loosening as lenders work to pump volume.