Higher mortgage rates pull down loan applications for new homes
Borrowers buying new homes produced fewer loan applications than they did a year earlier due to October's rising interest rates.
Loan applications for new-home purchases dropped 2.1% from October 2017, according to the Mortgage Bankers Association's Builder Application survey.
"While we have seen some monthly swings in new home sales in 2018, the year-to-date average sales pace is around 7% higher than the same period in 2017," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release. "Additionally, the average loan size for a new home purchase application, at around $332,000, was at its lowest since July 2017."
While applications for new-home loans were down year-to-year, they rose 11% from September.
"This is potentially a sign that there has been some additional inventory in the new home market, and that the rapid price growth in some geographies is starting to ease," Kan said.
On a seasonally adjusted basis, October had an estimated 4.7% increase in new single-family home sales, going to 673,000 units from 643,000 units in September. On an unadjusted basis, there were 53,000 estimated new-home sales in October 2018, an increase of 6% from 50,000 new home sales in September, according to the MBA.
Conventional loans accounted for 70.9% of new-home purchase applications in October. Federal Housing Administration loans comprised 17.1% and loans insured by the Department of Veterans Affairs represented 11.2%. U.S. Department of Agriculture Rural Housing Service loans occupied the remaining 0.7% of October's new-home purchase applications.
The average size of the loans sought in new-home purchase applications fell year-over-year to $331,732 from $339,534. It was also a month-over-month decline from September's $333,086.