Mortgage applications for new-home purchases increased 3.8% year over year in May, but affordability challenges and elevated mortgage rates continued to weigh on buyer demand, according to the Mortgage Bankers Association's (MBA) latest Builder Application Survey.
On a month-over-month basis, applications for new-home purchases declined 3% from April, without adjustment for typical seasonal patterns.
“New home purchase activity slowed in May, with MBA’s estimate of new home sales declining to 642,000 units,” said Joel Kan, CMB, MBA’s vice president and deputy chief economist. “Even as home builders continue to offer concessions to increase sales, homebuyers have been hesitant because of higher prices, increased economic uncertainty, and mortgage rates averaging over 6.5 percent in May.”
MBA estimates that new single-family home sales were running at a seasonally adjusted annual rate of 642,000 units in May, down 2% from April's pace of 655,000 units. On an unadjusted basis, MBA estimated there were 58,000 new-home sales in May, down 3.3% from 60,000 in April.
One of the clearest signals from the report was the continued reliance on government-backed financing among new-home buyers.
FHA loans accounted for 35.6% of applications in May, while VA loans represented 13.7% and USDA loans accounted for 1.1%. Combined, government-backed programs made up 50.4% of all builder applications for the fifth consecutive month, according to MBA.
Conventional loans represented 49.6% of applications.
Kan noted that the average loan size for new-home purchases fell to $372,825 in May, down from $378,384 in April and the lowest level in 10 months.
“The average loan size to purchase a new home was at the lowest level in 10 months at $372,825, consistent with government loans accounting for more than half of applications for the fifth consecutive month,” Kan said.
For MLOs, the data suggests that while affordability pressures continue to limit purchasing power, government lending programs remain an important avenue for buyers entering the new-home market. The combination of smaller average loan balances and sustained government-loan demand points to continued activity among borrowers seeking more affordable financing options despite elevated mortgage rates.
MBA's Builder Application Survey tracks application volume from mortgage subsidiaries of home builders nationwide and serves as an early indicator of new-home sales activity ahead of the U.S. Census Bureau's monthly New Residential Sales report.
