Mortgage applications for new homes are soaring

New home sales are moving at their fastest pace in over a year as builders continue their efforts to make up for an inventory shortfall, according to the Mortgage Bankers Association. 

Applications for new home purchases in May were up 16.6% from the same time last year and 8% greater than in April, the MBA said in its latest Builder Application Survey. It's the fourth consecutive month with a year-over-year increase after a slowdown last spring. Housing starts in May also surged to a seven-year high.

"Our estimate of new home sales also jumped in May, up 16 percent to the fastest pace of new home sales in 15 months," said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

The news comes as current homeowners stay on the sidelines given that mortgage rates are expected to stay above 6%, with the for-sale supply of homes nearly 40% below mid-2018 levels, according to Redfin. The MBA found that the supply of new properties is running at a seasonally adjusted rate of 755,000 units in May.

Builder sentiment in June is at an 11-month high, according to a recent National Association of Homebuilders/Wells Fargo survey. Respondents cited the inventory crunch and the Federal Reserve's slowing rate hikes as cause for optimism. 

Prospective borrowers purchased 64,000 new homes last month, a 10.3% jump from the 58,000 they bought in April, the MBA estimated. The average loan size for new builds was $403,581 last month, compared to the mean amount of all purchase loans at $425,100 in early June, according to the MBA.

Conventional loans accounted for 67% of application volume, while Federal Housing Administration mortgages made up 22.8% of applications. That share of FHA loans for new purchases was greater than in the market at-large, where FHA loans in early June accounted for 13% of all mortgage applications. 

Department of Veterans Affairs loans accounted for a 10% share of new home applications and 0.3% of volume were United States Department of Agriculture applications. 

The MBA gathers application volume from mortgage subsidiaries of home builders nationwide, while the U.S. Census Bureau conducts new home sales estimates, counted at the time of a contract signing.