New-home lending increases for third straight month

Mortgage applications for new residential homes rose on an annual basis last month but fell versus March, with the segment currently showing greater promise than the rest of the housing market, the Mortgage Bankers Association said. 

Loan applications for new single-family constructions in April increased 4.1% on a year-over-year basis, according to the MBA's Builder Application Survey.  When compared with the prior month, however, volumes declined by a nonseasonally adjusted 11%.

"This was the third straight month of year-over-year growth in applications, which signals improving housing demand for newly built homes at a time when the broader housing market is leaning more on new construction to boost for-sale inventory levels," said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

Although application volumes have slowed since earlier in 2022, recent government data is providing some glimmers of an upcoming reversal. Housing starts increased 2.2% between March and April, according to the U.S. Census Bureau. Single-family housing permits, which can serve as a bellwether for new starts, also came in higher. 

"We expect that to translate to growth in new-home sales activity in the second half of the year," Kan said, adding that the current higher mortgage rates are also playing a role in recent market shifts.

With many homeowners hesitant to sell and give up their current low interest rates, some aspiring buyers stymied by the lack of supply, along with limited affordability on what is for sale among existing homes, are now considering new constructions.

After what was a highly depressed business environment for home construction in 2022 characterized by some of the bleakest sentiment in years, the outlook this year has shown signs of an apparent rebound if recent homebuilder earnings are an indication. Similarly, the same index that showed homebuilders' views of market conditions consistently low for most of 2022 climbed higher for the fifth consecutive month.  

Based on its April data, the MBA estimates the volume of new homes sold in April fell to 58,000 compared to 65,000 a month earlier. New-home sales are expected to come in at an annual seasonally adjusted rate of 649,000 units, representing a 2.6% decline from March's 666,000 figure. The MBA's monthly survey measures activity as reported by lending subsidiaries of homebuilders nationwide, combining its findings with analysis of data from other sources to provide estimates of new-home sales volumes.

Conventional mortgages accounted for two-thirds, or 66.2% of new-home loan applications last month. Among government-guaranteed volume, 23.4% consisted of loans backed by the Federal Housing Administration, while Department of Veterans Affairs-sponsored activity garnered a 10% share. The remaining 0.4% came through the U.S. Department of Agriculture's Rural Housing Service. 

The average purchase size of new-home mortgage originations edged down monthly by 1.3% to $401,756 in April from $407,015, heading in the opposite direction from loans for existing properties. Recent MBA weekly surveys of mortgage lenders found average purchase-application amounts in the industry running above $430,000 throughout April.