Mortgage demand for newly built homes was sharply lower in July compared to year-ago levels as challenging sales conditions persist for U.S. home builders.
The Mortgage Bankers Association (MBA) said Thursday that new-home purchase applications posted a 5.7% annual decline last month while slipping 1% lower than June.
“With new-home inventory still elevated, weaker demand likely reflects increased homebuyer sensitivity to higher mortgage rates,” Joel Kan, deputy chief economist of the MBA, commented in the monthly report.
July marks only the second month since last October that mortgage demand for new construction has posted year-over-year declines, according to the MBA’s Builder Application Survey, which tracks application volumes from mortgage subsidiaries of U.S. home builders.
Survey respondents include mostly large builders, which typically account for roughly 20% of annual new-home sales. The survey does not reflect a growing volume of new-home mortgage applications arising from partnerships between builders and independent mortgage banks.
The only other month of annual declines in new-home mortgage demand was April, according to the MBA survey. That was during the second full month of the Iran war.
Application volumes had been 2.4% higher than year-ago levels in June amid a slight reprieve in mortgage rates following a memorandum of understanding signed on June 17 by the U.S. and Iran, which set a 60-day time frame to hash out a deal. Home financing costs marched higher in July and even higher in August, however, as efforts to cement a peace plan have faltered.
As fighting in the Strait of Hormuz has renewed in recent weeks, so have concerns among global investors that inflationary impacts of the conflict will not only persist but worsen.
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Declining affordability and rising economic uncertainty contributed to a further slowdown in new-home sales in July, according to the MBA’s estimates published Thursday.
Derived from its builder survey data and published in advance of official government figures, the MBA projects new single-family home sales fell 3% from June on a seasonally adjusted basis to an annual pace of 647,000 units. That ultimately reflects 54,000 new homes sold in July, a 3.6% decrease from 56,000 sales in June, by MBA estimates.
“The annualized sales pace decreased for the third time in four months,” Kan also noted, “and at 647,000 units, fell below the average sales pace of 664,000 units during the first six months of the year.”
Contraction in the sector continues despite two-thirds of builders leaning heavily on sales incentives averaging between 9% and 14% of typical new-home sales prices, according to Fitch Ratings.
The average loan amount for new homes sold in July fell to $374,438 from $375,218 the previous month, according to the MBA.
Conventional loans that satisfy the underwriting guidelines of Fannie Mae and Freddie Mac made up 50% of applications, while applications for loans insured by the Federal Housing Administration remained roughly flat at around 34%. The Department of Veterans Affairs’ share of new-home applications last month was 13.6%.
The U.S. Census Bureau and Department of Housing and Urban Development are scheduled to publish July new-home sales data on Aug. 25. They reported 1.6% growth in new-home sales in June, which still left year-to-date sales down about 5.2%.
