While volume dropped, new-home loans hit a price record in May

New-home purchase application volume fell for the second consecutive month in May, as soaring prices pushed more potential buyers out of the market and the costs of building materials remained high.

These applications dropped 9% from April and 5.9% year-over-year, according to the Mortgage Bankers Association’s Builder Application Survey. The rate of new-home sales fell 3.8% month-over-month as well, a recent trend that caused Fannie Mae to reduce its purchase volume forecast for the rest of the year.

May’s seasonally adjusted annual estimate of 741,000 sales marked a decrease from April’s pace of 770,000 units. The annual rate of sales dipped 20% after hitting a survey high of 927,000 in October 2020 due to strained inventory and price growth, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting. Unadjusted estimates showed 68,000 new-homes sold in May, down 5.6% from 72,000 in April.

In spite of reduced activity, the average new-home loan size grew for the fourth month in a row and hit a survey high of $384,323, up from $377,434 in April and $332,793 the year before.

“Loan balances continue to rise because of a larger share of sales in the higher end of the market, as well as increased sales prices from strong demand and elevated building material costs,” Kan said in a press release.

Conventional loans accounted for 73.9% of new-home loan applications, up from April’s 72.9% and May 2020’s 62.5% shares. Loans insured by the Federal Housing Administration followed at a 14.8% share, falling monthly from 15.8% and annually from 24.5%. Mortgages guaranteed by the Department of Veterans Affairs went to 10.4% from 10.3% and 11.8%, while Rural Housing Service and U.S. Department of Agriculture loans took up the remaining 0.9%, edging down from 1%. 1.2%, respectively.