Mortgages for new homes see sharp June pullback

After months of heightened interest, mortgages for new single-family homes pulled back sharply in June, as lending activity significantly cooled.

Applications for new homes decreased 16% from May on a non-seasonally adjusted basis, posting its first decline in 2024, according to the Mortgage Bankers Association's Builder Application survey. Compared to the same time period one year prior, volumes were generally flat, but still managed to rise for the 17th straight month with a 0.7% gain.   

By comparison, May's builder survey saw monthly applications grow 1% on a monthly basis and 13.8% annually. Data is compiled from mortgage lending subsidiaries of U.S. homebuilders. 

"Applications for new-home purchases slowed in June, consistent with broader declines in single-family construction and new building permits as well as typical seasonal patterns," said Joel Kan, MBA's vice president and deputy chief economist, in a press release.

Sales of new single-family constructions proved to be a bright spot over the past two years in a market where elevated interest rates left existing homeowners reluctant to sell their properties.  The latest MBA report follows other recent data releases showing fewer new single-family starts and sold units in the late spring to early summer period — which typically marks the end of the busiest buying season — all combining to dampen previous momentum. 

A fall in mortgage rates in June failed to boost the new-construction market, Kan said. "MBA's estimate of new-home sales showed a monthly decline to a pace of 626,000 units — the slowest in four months."

June's number was 10.8% lower than May's seasonally adjusted annual sales rate of 702,000, which was the highest mark since last fall. 

In total, 52,000 new constructions were sold last month, 17.5% fewer than the 63,000 sales transactions recorded in May. 

The share of properties financed by Federal Housing Administration-backed loans grew to 28.7% from 26.5% in May, hitting a survey high "as first-time buyers continue to account for a growing share of demand for newly built homes," Kan said. 

The previous record share for FHA new-home mortgages, which are commonly used by first-time buyers, was 27.1% last November. 

Among other types of loans in the government segment, Department of Veterans Affairs-guaranteed applications made up 10.2% of volume in June, while mortgages backed by the U.S. Department of Agriculture accounted for 0.3%.

The share of conventional applications relative to total volume came in at 60.8%, down from 63.4% a month earlier.

The average loan size for new single-family constructions in June fell under the $400,000 mark to $399,879. The figure dropped for the second month in a row and represented a pullback of than one-tenth of 1% from May's mark of $400,150.