Mortgage applications for new construction homes ticked up in July

With strong demand and limited options for existing homes, many homebuyers are turning to new construction.

Mortgage applications for new construction home purchases increased 35.5% in July on a year-over-year basis, according to the Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data. On a monthly basis, applications ticked up by 0.2%. This change does not include any adjustment for typical seasonal patterns.

MBA’s survey tracks application volume from mortgage subsidiaries of homebuilders across the country. 

“Applications for purchase loans on newly constructed homes remained strong in July, up 36% annually, as new homes continued to account for a growing share of homes available for sale,” said Joel Kan, MBA’s vice president and deputy chief economist. 

Overall, 24.2% of purchase applications came from the FHA , the highest share since May 2020. Additionally, the share kept increasing in four of the last five months. 

“FHA purchase loans are a popular option for many first-time homebuyers and this increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option, given the lack of for-sale inventory among existing homes and challenging affordability conditions,” added Kan.

According to MBA estimates, new single-family home sales were running at a seasonally adjusted annual rate of 677,000 units in July 2023. It’s down 1.5% from the June pace of 687,000 units.  On an unadjusted basis, MBA estimates that there were 56,000 new home sales in July 2023, a decrease of 6.7% from 60,000 new home sales in June. 

Conventional loans made up for the majority of loan applications

By product type, conventional loans made up 65.3% of loan applications. Meanwhile, FHA loans composed 24.2% of total loan applications while RHS/USDA loans composed 0.3% and VA loans composed 10.2%. Simultaneously, the average loan size for new homes decreased to $397,148 in July from $400,281 in June.

However, the 7% mortgage rates and reduced housing affordability pushed down the homebuilder’s confidence index, which fell to 50 in August. New home sales also dipped 2.5% in June.