More new home buyers turning to FHA for financing, MBA says

Mortgage applications from newly constructed home sales increased for the ninth consecutive month on a year-over-year basis, a sign that that inventory shortage is not abating, according to the Mortgage Bankers Association.

Furthermore, use of Federal Housing Administration-insured financing hitting a survey-high signals that newcomers to the market are going this route as well.

The MBA's Builder Application Survey for October was 6% higher than in September and marked a 39.7% increase compared with October 2022.

"The FHA share of applications increased to 26%, the highest share since the survey began in 2013, as more first-time homebuyers turn to the new home market for more options and as some builders start to build more starter homes," Joel Kan, the MBA's deputy chief economist, said in a press release.

The recent report from the National Association of Realtors that household income of first-time home buyers hit an all-time high in 2022 is another sign of the difficulties this group has been facing in the market. That report also noted that the amount these buyers had to put down also was the highest since 1997.

Mortgage rates, until recent weeks, have been climbing close to the 8% mark, making many potential buyers hesitant about making a purchase.

"Home builders have been able to temper this high-rate environment by offering buyers rate buydowns and other incentives," Kan said. "We estimate that the pace of home sales increased for the third straight month to a 715,000-unit annual pace — the strongest sales month since May 2023."

That seasonally adjusted estimate is an increase of 12.8% from the September pace of 634,000 units.

Unadjusted, home sales totaled 55,000 in October, up 7.8% from 51,000 in September. It was also a gain of 47,000 units in October 2022.

By application type, conventional loans had a 63.6% share, followed by FHA at 26.3%, Veterans Affairs at 9.8% and U.S. Department of Agriculture/Rural Housing Service at 0.3%.

The average loan size fell by over $7,000, to $390,225 for October, compared with $397,550 the prior month. A year earlier, it was $400,616, over $10,000 higher.

That lower average balance was probably helped by a 0.1% month-to-month decline in residential construction materials, a National Association of Home Builder look at the Nov. 15 Bureau of Labor Statistics Producer Price Index report said.

The softwood lumber PPI was down a seasonally adjusted 2.8% in October following a 1.3% increase in September. The index fell 12.1% over the last year. It is also 52.3% lower than the record high set in 2021.

For gypsum building materials, prices are now 1.4% lower than for October 2022.

In the first 10 months of this year, prices fell 1.6%, compared with gains of 10.9% for the same period in 2022, and 17.9% in 2021.

Steel mill product prices were down 2.5% in October, and a total of 12.5% over the past five months. But NAHB pointed out these are still 60% higher than prepandemic levels.

But ready-mix concrete is bucking the trend, rising 0.8% seasonally adjusted in October after a revised 2.1% gain in September.