New home mortgage applications cool back down

Newly constructed home sales and loan applications ticked down in June as buyers balked at higher mortgage rates, but activity remained above last year's, according to the Mortgage Bankers Association.

Loan volume slowed slightly this month, reporting a 5% decrease since May, according to the MBA's Builder Application Survey. But new home lending is holding strong year-over-year — applications are up 26.1% from last June.

Sales in this segment followed the same pattern: the BAS seasonally adjusted new single-family sales rate was 687,000 units this month, a 9% monthly decrease, but a 10.8% yearly increase. Unadjusted new home sales reached 60,000 in June, compared to 64,000 in May. 

"New home purchase activity continues to be a bright spot, as both new home applications and home sales were up on an annual basis," Joel Kan, MBA's vice president and deputy chief economist, said in a press release. "Rising mortgage rates in June likely caused some pullback in purchases over the month."

The average 30-year fixed mortgage rate hovered around 6.7% throughout June, according to Freddie Mac.

These rates have the biggest impact on the existing home market, where they are likely scaring away would-be sellers from listing, furthering the industry's housing inventory problem. This June, there were 13.8% fewer homes for sale and 29.1% fewer newly listed homes than last year, according to Redfin data.

But the new home market has been stronger than expected, Doug Duncan, Fannie Mae's chief economist, noted in his latest economic report.

Builder sentiment, on the other hand, is up this month according to the National Association of Home Builders/Wells Fargo Housing Market Index. It's at its highest since last July. 

"The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers," Robert Dietz, the chief economist at NAHB, said in an article about the index. 

At the same time, Dietz says builders are worried about high mortgage rates and supply-side challenges despite recent cost stabilizations. New home construction rates soared in May, then shrunk back slightly in June.

The BAS said June's average loan size was $400,281, marginally less than May's average of $403,581. Conventional loans remain the most popular, making up 65.5% of all loans. Federal Housing Administration loans follow at 24.1%. FHA loans made up slightly more of the total loan pool in June, gaining some ground from conventional loans.

Both Department of Veterans Affairs and Department of Agriculture loan proportions remained unchanged, making up 10% and 0.3% respectively.