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Purchase Mortgage Apps Fall for Fourth Consecutive Month

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for July 2022 shows mortgage applications for new home purchases fell 16.1% year-over-year. Compared to June 2022, applications decreased by 7%, a change that does not include any adjustment for typical seasonal patterns.

“Mortgage applications to purchase newly built homes weakened in July, as prospective homebuyers continue to delay decisions because of economic uncertainty and still-high home prices and mortgage rates,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “The slide in purchase applications for new homes–now down for the fourth consecutive month, and 16% lower than a year ago—is consistent with data on declining homebuilder sentiment and slowing permitting activity for new construction.”

MBA’s estimate of new single-family home sales, which has consistently been a leading indicator of the U.S. Census Bureau’s New Residential Sales report, is that new single-family home sales were running at a seasonally adjusted annual rate of 591,000 units in July 2022, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.

The MBA reports that, by product type, conventional loans composed 70.7% of loan applications in July 2022, with FHA loans composing 17.7%, RHS/USDA loans 0.2%, and VA loans 11.4%. The average loan size of new homes decreased from $423,221 in June to $416,029 in July.

The seasonally adjusted estimate for July is a decrease of 2.6% from the revised June pace of 607,000 units. On an unadjusted basis, MBA estimates that there were 50,000 new home sales in July 2022, a decrease of 10.7% from the revised 56,000 new home sales in June.

And that declining homebuilder sentiment was echoed the by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) which found that builder confidence plunged in July, as high inflation and increased interest rates slowed home sales and buyer traffic, the seventh straight month of waning builder confidence recorded by the NAHB.

NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga., added, “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home.”

Further dampening hopes of reversing homebuilder sentiment is the latest the latest Producer Price Index (PPI) report from the Bureau of Labor Statistics (BLS), which found the prices of building materials rose 0.4% in July (not seasonally adjusted) even as softwood lumber prices increased 2.3%. Overall since the beginning of 2022, prices of building materials have surged 35.7%, although 80% of the increase has occurred since January 2021. The PPI for softwood lumber (seasonally adjusted) saw a modest increase (+2.3%) in July, its first increase in four months.

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country. Utilizing this data, as well as data from other sources, MBA is able to provide an early estimate of new home sales volume at the national, state, and metro levels.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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