New-home loan applications increase at fastest pace since January

Applications for new single-family homes dropped off sharply from one year ago, but volumes increased on a month-over-month basis to reach their highest level since January.

October’s new-home loan activity jumped up by 6% compared to September, according to the latest results from the Mortgage Bankers Association's Builder Application Survey. But on an annual basis, October’s numbers were 15.2% lower than those from the same month in 2020.

The latest numbers are consistent with the ongoing narrative about the diminishing supply of existing homes in the face of high demand.

“Recent U.S. Census data show an increasing share of new sales are for homes yet to be built or still under construction, and a shrinking share of completed homes,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release. 

Sales numbers for yet-to-be-built homes increased even as experts warn that supply-chain disruptions are likely to continue to impact the market well into 2022.

“Overall construction costs, as measured by the Producer Price Index, recorded an annual increase of 12.3% in October, which is almost five times the average annual change," Kan said.

But many buyers seemed undeterred by the spiking costs, pushing the average new-home loan amount to $412,339, a survey record, according to Kan. October’s average was 0.9% higher than September’s $408,522. Purchases overall have inched toward higher loan amounts over the past several weeks.

“Housing demand remains strong, and buyers are making quick decisions in a still very competitive market,” Kan added.

Unadjusted new-home sales numbers for October came in at 68,000, rising 3% from 66,000 the previous month. The increase seen in October’s data led the MBA to revise its estimate of seasonally adjusted annual sales to 897,000 units, a 6.4% increase from September’s anticipated 843,000.

Among the total volume of mortgage applications for new constructions in October, conventional loans accounted for the lion’s share at 75.7%, compared to 75.1% a month earlier and 71.8% in the same month of 2020. Applications taken through Federal Housing Administration programs made up a 13.5% share, down from September’s 13.9% and 17.6% year-over-year. Veterans Affairs-backed loans equaled 10.3%, below the prior month’s 10.5% but above the 9.9% recorded in October 2020. The share of applications coming via the Rural Housing Service and U.S. Department of Agriculture remained steady at 0.5% on a monthly basis, but down annually from 0.8%.