Mortgage applications for newly constructed homes declined in May as sales and supply are not keeping up with demand, the Mortgage Bankers Association said.

"Despite strong demand, builders have not been able to ramp up the supply of new homes, as they face rising costs from key inputs such as lumber and having to raise wages to fill open positions," Joel Kan, the MBA's associate vice president of economic and industry forecasting, said in a press release. "Additionally, our estimate of new home sales declined in May, reaching its lowest level since December 2017."

There was a 4% drop in new home purchase loan applications compared with April, and a 0.5% decline from May 2017, the Builder Application Survey found.

Average home loan size

May's new home sales were at a seasonally adjusted annual rate of 626,000 units, which the MBA estimated based on the survey's data along with assumptions regarding market coverage and other factors.

This was a 4.6% decline from April's pace of 656,000 units.

On an unadjusted basis, there was an estimated 60,000 new homes sold in May, down from 63,000 in April but up from 57,000 for May 2017.

The average loan size of new homes increased to $337,515 in May from $336,870 in April and $324,844 for May 2017.

By product type, conventional loans composed 71.1% of loan applications. Buyers seeking Federal Housing Administration-insured loans made up 15.8% with those looking for Veterans Affairs-guaranteed financing were 12.1% of the total. Only 1% of the borrowers applied for a U.S. Department of Agriculture Rural Housing Service loan.