Home buyers still want to buy a newly built home, that much is clear. However, it appears that some buyers are reluctant to buy that new home thanks to the cost of a new home continuing to rise due to lumber price increases.
A new report from the Mortgage Bankers Association shows that mortgage applications for new home purchases fell in April, halting a trend of increases that stretched back into late 2020.
According to the MBA report, mortgage applications for new homes fell by 9% in April from March’s totals. That’s the first time that demand for new homes has fallen in several months.
As for why there was a decline in demand in April, Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting, said that rising construction costs are driving new home prices to record levels.
According to Kan, the average loan size for a new home purchase application in April was the highest on record.
“The purchase market remains strong overall, but low housing inventory and accelerating home prices have started to adversely impact purchase activity,” Kan said. “Additionally, homebuilders have reported significantly higher input prices, which is contributing to the ongoing rise in sales prices and average loan sizes.”
All is not lost though. It should be noted that new home purchase applications in April were actually up by nearly 31% over April 2020, although those figures were likely well below normal as April 2020 was the height of nationwide lockdowns due to the spread of COVID-19.
Speaking of positivity, Kan also noted that the MBA estimates that new home sales in April rose by 8%, placing new home sales at a robust pace, albeit one that’s running behind the second half of 2020.
Broken down by loan type, conventional loans made 72.9% of new home loan applications in April, FHA loans made up 15.8%, while VA loans were 10.3%.
The average loan size of new homes increased from $374,353 in March to $377,434 in April.