New-home purchases approach two-year win streak

A shortfall of existing homes provided another boost to homebuilders, with purchase applications for new constructions increasing for another month, according to the Mortgage Bankers Association.

The trade group's Builder Application Survey showed activity jumping 7.2% on an annual basis in November, slowing from 8.2% a month earlier. The latest number also reflects a slowdown in growth from 21.8% a year earlier, but new constructions remained a bright spot for the housing market. 

"Applications to purchase newly built homes have seen annual increases since February 2023, as prospective homebuyers continue to favor new homes, given affordability challenges and constrained existing inventory," said Joel Kan, MBA vice president and deputy chief economist in a press release. 

While mortgage rates headed upward following the presidential election, builders managed to maintain their year-over-year momentum, pointing to still-robust demand. On a month-to-month basis, though, applications dropped 12% in line with normal seasonal patterns, MBA reported. Data was not seasonally adjusted. 

While pending sales of existing homes have also experienced an uptick in the final few months of 2024, the ongoing scarcity of existing supply and current price levels continue to make the housing market largely unaffordable for a large share of consumers. Many of them have looked toward new units as a possible option, as illustrated by the number turning to the Federal Housing Administration for their purchase mortgages, according to Kan. 

"The FHA share of applications, at 28%, continues to show that first-time home buyers account for a significant share of new-home demand," he said.

Some homebuilders also have offered incentive, including rate buydowns to provide price relief. Presently, new homes make up close to one-third of housing sales, far above historical averages of approximately 12%, according to the National Association of Homebuilders.  

Based on an analysis of its monthly survey, which tracks mortgage volumes from lending subsidiaries of U.S. builders, the MBA estimated the annual new-home sales rate at a seasonally adjusted 713,000 in November, slowing 4.6% from 747,000 in October. Still, November's pace was the third-strongest this year, Kan said.

On a nonadjusted basis, the number of purchases last month came in at 49,000, falling from October's 56,000. Meanwhile, the average loan-size decreased 1.7% to $402,873 compared to $409,942 in the prior monthly survey. 

Conventional loan applications saw their monthly slice of the market expand to 61.6% in November, growing from 60.8%. 

While government-backed purchase loans have surged over the last two years, it slipped last month, with FHA-guaranteed loans decreasing their share from 28.8% in October. Also shrinking was the portion of loans sponsored by the Department of Veterans Affairs, which made up 9.9% of activity in November, off from 10.1% a month earlier. Applications backed by the U.S. Department of Agriculture garnered the same 0.4% share month over month.