New Home Apps Dropped In September, Putting Pressure On Worried Builders

New home mortgage applications dropped sharply in September as buyers backed away from decades-high interest rates.

The Mortgage Bankers Association’s Builder Application Survey for September 2022 found that applications for new home purchases fell 13.2% YOY and 7% from August.

Based on that data, MBA predicts that new single-family home sales ran at a seasonally adjusted rate of 637,000 in September.

“New home purchase activity declined in September as prospective homebuyers pulled back in response to higher mortgage rates, increased concern about an impending recession, and a broader slowdown in home-price growth,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

“The average 30-year fixed mortgage rate increased almost a full percentage point in the last month, greatly reducing the purchasing power of many home shoppers. MBA’s estimate of new home sales declined 9% in September, partially reversing the 18% increase in August during that brief period when mortgage rates decreased.”

Builder confidence in the new home market dipped eight points in October to just half the level it was six months ago.

Other than a major dip at the beginning of the pandemic, this is the lowest confidence reading since August 2012.

“This will be the first year since 2011 to see a decline for single-family starts,” said NAHB Chief Economist Robert Dietz.

“While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers.”

In keeping with falling competition, the average loan size also decreased, from $415,594 to $406,767. Loan size reached a record high in April and has fallen every month since then.

On an adjusted basis, MBA says new home sales fell 8.9% in September. Unadjusted, it estimates there were 52,000 new home sales, down 10.3% from August.

Conventional loans accounted for 69.8% of applications, followed by FHA loans (18.7%), RHS/USDA loans (0.3%), and Va loans (11.2%).

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