As existing-home sales dwindle due to high mortgage rates and the lock-in effect, buyers continue turning to new construction options. And Mortgage Bankers Association (MBA) data shows a shifting attitude as mortgage applications for new homes surged in October.
MBA’s Builder Application Survey released this week shows that the non-seasonally adjusted application rate for new-home applications grew by 3% from September 2024 and were up 8.2% from October 2023.
MBA estimates that nearly 56,000 new homes were sold in October — up 3.7% from the 54,000 sales in September. On a seasonally adjusted basis, MBA reported a 9.9% monthly increase for an annualized sales rate of 680,000 units.
Joel Kan, MBA’s vice president and deputy chief economist, attributes the recent increase to a lack of existing-home inventory in the market.
“New homes are an attractive alternative for many buyers as existing inventory is still tight in many markets around the country and a newly constructed home provides additional customization options,” Kan said in a statement.
Average loan size reached highest level since 2022
Alongside the growth in new-home application rates, the average size of a mortgage for a new home also moved higher. MBA reported an average loan amount of $410,000 in October, up from $402,000 in September.
Federal Housing Administration (FHA) loans represent a 29% share of all new-home applications, a significant increase compared to their historical averages. MBA attributes this to the steady presence of first-time homebuyers in the housing market.
U.S. Department of Veterans Affairs (VA) loans comprised 10% of new-home loan applications, with U.S. Department of Agriculture (USDA) loans at 0.4%.
Growing homebuilder confidence also plays a factor in new-home application growth. The National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index grew by 3 points to a reading of 46 in November, showing that builders are feeling better about proceeding with new development projects. The recent election could be a prime factor.
“Builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments,” NAHB Chairman Carl Harris said in a statement. “This is reflected in a huge jump in builder sales expectations over the next six months.”
Conversely, mortgage delinquencies sank to 3.92% at the end of September. As the market moves into 2025, observers must wait and see how the homes sales change.
