New Home Purchase Mortgage Applications Decline in May

Yet another report has come out showing a potential slowing in the home sales market.

Mortgage applications for new home purchases decreased 5.9% compared to a year ago, according to the Mortgage Bankers Association Builder Application Survey data for May 2021. The BAS tracks application volume from mortgage subsidiaries of home builders across the country. Applications decreased by 9% compared to April.

“Mortgage applications to purchase a new home decreased in May for the second straight month, while the average loan size, at $384,000, increased for the fourth consecutive month and reached a new survey high,” said Joel Kan, MBA’s associate vice president of Economic and Industry Forecasting, in a prepared statement.

MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 741,000 units in May 2021. It derives mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors. May’s seasonally adjusted estimate is a decrease of 3.8% from the April pace of 770,000 units. Kan says the rate of new home sales has fallen around 20% since reaching a survey-high 927,000 units in October 2020. He attributed this to low housing inventory and rising prices.

MBA estimates that there were 68,000 new home sales on unadjusted data in May 2021. That is a decrease of 5.6% from 72,000 recent home sales in April.

Conventional loans composed 73.9% of loan applications. FHA loans composed 14.8%, while VA loans composed 10.4% and RHS/USDA loans composed 0.9%. In April, the average loan size of new homes was $377,434. It increased to $384,323 in May. “Loan balances continue to rise because of a larger share of sales in the higher end of the market, as well as increased sales prices from strong demand and elevated building material costs,” Kan said in the prepared statement.    

Other recent reports also indicate a cool down in the home sales market.

Last week Redfin reported a four-week decline in pending sales and a drop in its demand index, down 12% from its late-March peak. Still, pending home sales were up 29% year over year. But seasonally adjusted pending sales are down 9.7% from their peak four weeks ago, which Redfin attributes to people opting to pause their home search and take advantage of the holiday weekend.

Mortgage purchase applications have been falling since late March, according to Redfin. They increased 0.3% week over week (seasonally adjusted) during the week ending June 4. Despite low mortgage rates and easing access to credit, they are now 7% below their average levels in January and February 2020.

According to Fannie Mae’s home buying sentiment index, only 35% of consumers said it is a good time to buy a home in May. In April, that number was 47%, and in May 2020, it was 52%.