Applications for New Home Purchases Plummet Because There Are Fewer New Homes to Buy

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Applications for mortgages for new home purchases dropped 3% in May compared with April and were down 23.8% compared with May 2020, due to a slowdown in residential home construction, the Mortgage Bankers Association’s (MBA) Builder Application Survey (BAS) shows.

It’s a familiar problem: As inventory continues to shrink and demand rises, there are fewer new homes to buy.

“Homebuilders are encountering stronger headwinds of late, as severe price increases for key building materials, rising regulatory costs, and labor shortages impact their ability to raise production,” says Joel Kan, associate vice president of economic and industry forecasting for the MBA, in a statement. “This has dampened new home sales and quickened home-price growth.

“Additionally, still-low levels of for-sale inventory are also pushing prices higher as competition for available units remains high among prospective buyers,” Kan says. “Applications for new home purchases fell for the third consecutive month, while the average loan amount surged to another record high at $392,370. In addition to price increases, we are also seeing fewer purchase transactions in the lower price tiers as more of these potential buyers are being priced out of the market, further exerting upward pressure on loan balances.

“Our estimate of new home sales in June dropped to its lowest annual pace since May 2020 at 704,000 units,” Kan adds. “The average pace of sales has remained strong at around 738,000 for the past three months, but it is still around 7 percent lower than the average for 2020. Last year was strongest year for new home sales in over a decade.”  

The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 704,000 units in June, a decrease of 5% from the May pace of 741,000 units.

On an unadjusted basis, the MBA estimates that there were 66,000 new home sales in June, a decrease of 2.9% from 68,000 new home sales in May.

Photo: Todd Kent

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