In another sign of ongoing slowing homebuilder and originations activity, new-home purchase mortgages dropped for the fourth consecutive month in July, with sales estimated to be at their slowest in over two years, according to the Mortgage Bankers Association.
The fall in purchase applications for new homes “is consistent with data on declining homebuilder sentiment and slowing permitting activity for new construction,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.
The association’s July Builder Application Survey indicated new home purchases dropped by 16.1% on an annual basis and 7% compared to newly revised June numbers. Results are not seasonally adjusted.
Based on the current trends, the MBA now estimates seasonally adjusted new single-family-home sales coming in at a yearly pace of 591,000 units, the slowest rate since April 2020, when COVID-19 suspended business activity across most of the country. The number represents a 2.6% decrease from June’s revised estimate of 607,000. The association also determined that the total of new home sales in July tumbled 10.7% to 50,000 from 56,000 in June.
“Mortgage applications to purchase newly built homes weakened in July, as prospective home buyers continue to delay decisions because of economic uncertainty and still-high home prices and mortgage rates,” Kan said.
The MBA’s July findings come after recent reports from several groups that pointed to slowing growth volumes confronting not just builders, but the real estate community at large.
Overall home sales declined 19.3% year over year to 501,000 in July — their lowest point since 2020, according to research from online real estate brokerage Redfin. It was the largest annual drop in sales in over a year. Compared to June activity, home sales dipped 4.1%, a sixth-straight monthly decline.
At the same time, the months-long surge in housing costs decelerated, increasing at its slowest pace in over two years in July. The median home price rose by 7.7% on an annual basis after several months of double-digit growth, an indication of diminished buyer demand and purchase competition, the brokerage said. Almost 21% of sellers dropped their asking price, the highest share since at least 2012, when Redfin started tracking the data.
In the MBA survey of builders, the average loan amount for new-home mortgage applications in July slid 1.7% to $416,029 from $423,221 a month earlier. Conventional purchases accounted for 70.7% of the applications. Federal Housing Administration-guaranteed loans made up a 17.7% share, while Department of Veterans Affairs applications totaled 11.4% of all new-construction mortgage activity. New-home loan applications from the U.S. Department of Agriculture’s Rural Housing Service equaled 0.2%.
According to some economists, the outlook for new-property constructions is likely to dim further before a reversal takes place, especially when the MBA’s data is examined alongside numbers released by the U.S. Census Bureau last week showing single-family housing starts declining by 10.1% in July.
“We expect new home construction will continue to decline through the rest of the year amid the higher mortgage-rate environment and significantly lower home-builder confidence,” Fannie Mae Chief Economist Doug Duncan said.
Recently, the National Association of Home Builders found industry sentiment among its members has fallen to its lowest in over two years as well, with 20% now saying they had lowered prices on newly built properties. Purchase sentiment among consumers also came in at a more than two-year low in July, according to Fannie Mae.