New-home mortgage applications rise as sales reach seven-year high

Loan applications to purchase newly constructed homes during October rose by nearly one-third year-over-year as sales reached their highest annual pace since the Mortgage Bankers Association started tracking this data.

Consumers looking to take out a mortgage secured by a new home increased 31.5% from the year before, the MBA's Builder Application Survey reported. Compared with September, application volume increased by 9%.

"At an annual pace of 791,000 units, our estimate of new sales has reached its highest level since the inception of our survey in 2012," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release.

"Homebuilder sentiment remains close to 18-month highs, and housing starts and permits have increased for four straight months. These are promising signs for the housing market, as the rise in new and existing housing supply has led to slower home-price growth and improving affordability."

October's seasonally adjusted estimate of new-home sales grew 9.1% from September's pace of 725,000 units.

On an unadjusted basis, an estimated 61,000 new homes sold in October, compared with 56,000 in September and 53,000 during October 2018.

The average loan size increased to a six-month high of $335,235 from $330,807 for September. The average loan size last year was $331,732.

Even with the increase in loan size, slightly fewer borrowers sought conventional mortgages, 67.8% in October, compared with 69.2% the prior month.

The share of Federal Housing Administration-insured mortgages increased to 19.2% from 18.4%, while Veterans Affairs-guaranteed mortgages took a 12.3% share, versus 11.6% the prior month. The share of U.S. Department of Agriculture Rural Housing Service loans fell to 0.7% from 0.9%.

Separately, the number of single-family construction authorizations rose on a year-over-year basis in October for the first time since September 2018, according to BuildFax.

Authorizations increased 2.33% from October 2018 and by 0.24% from September.

Meanwhile, existing-home maintenance activity continued its upswing, rising 6.08% over October 2018.

Remodel volume — a subset of maintenance that includes renovations, additions and alterations — jumped 6.83% from the prior year.

"Last November, housing activity experienced the first instance of blanket declines since 2011, when the economy was still recovering from the 2008 recession," Jonathan Kanarek, BuildFax's managing director, said in the report.

"Almost a year following November's declines, we're now seeing blanket increases. In light of the recent upswing in housing activity, it's likely the 2019 housing slide was a stabilization of a white-hot market. This is, of course, further bolstered by a strengthening economy that recently experienced interest rate cuts, steady wage growth and a reversion in the yield curve," said Kanarek.