Low rates overcome economic worries to boost new-home mortgage apps

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July's low mortgage rate environment encouraged new homebuyers to overcome their fears about the direction of the economy that kept them out of the market in June, according to the Mortgage Bankers Association.

The group's Builder Application Survey showed an 11% increase in activity compared with June — where activity had declined compared with May — and a 31% increase over July 2018.

"July's strong new-home sales increase on a monthly and annual basis was driven by the ongoing decline in mortgage rates, combined with steady housing demand and a still-healthy job market," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release. "The average loan size decreased last month, likely influenced by the increase in the first-time homebuyer share, as these buyers are likely to choose lower-priced, entry-level homes."

The average loan size of new homes decreased to $325,457 in July from $329,593 in June and $337,775 in July 2018.

New single-family home sales were running at a seasonally adjusted annual rate of 754,000 units in July 2019, the MBA estimated based on data from the BAS. This is an increase of 16.7% from the June pace of 646,000 units.

On an unadjusted basis, there were an estimated 63,000 new home sales in July 2019, an increase of 8.6% from 58,000 new home sales in June.

By product type, conventional mortgages made up 69.1% of loan applications for a newly constructed property; Federal Housing Administration, 18.1%; Veterans Affairs, 11.7%; and U.S. Department of Agriculture Rural Housing Service, 1%.

Separately, authorizations for new single-family construction during July fell 4.18% year-over-year and rose by a scant 32 basis points when compared with June, according to the BuildFax Housing Health Report.

"Over the past three months, single-family housing authorizations have remained relatively flat, increasing or decreasing within one percentage point month over month. However, in contrast to 2018's rapid new-housing growth, year-over-year activity is still experiencing steady declines," the report said.

When it came to existing housing, the maintenance volume increased by 2.36% over July 2018 and remodeling activity (a subset that measures renovations, additions and alterations) was up 4.3% compared with one year prior.

This year saw "several months of significant declines across the existing housing supply," Jonathan Kanarek, BuildFax's chief operating officer, said in a press release.

"However, since April, declining maintenance and remodel activity has slowed. While one month of increasing activity is not a trend, it may signify the start of a stabilizing in the housing stock. It's still early, but if existing housing activity maintains its current pace, that's a positive sign for the stability and health of the U.S. housing stock," Kanarek said.

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Purchase Mortgage applications Homebuilders Mortgage rates Housing market First time home buyers Mortgage Bankers Association