Both applications for builder-home loans and new-house sale estimates dropped in February, despite the fact that residential construction starts surged during the month, moving at the fastest pace since 2006.
The number of borrowers applying for loans to fund new-home purchases fell 3.9% compared to a year ago and was down 1% from January. The seasonally-adjusted, annual rate of builder-home sales was 791,000 units, down 3.7% from January, according to the MBA’s estimates.
During the same month, single- and multifamily starts jumped 6.8% on a consecutive-month basis to a seasonally-adjusted annualized rate of 1.77 million, according to a report jointly released by the Department of Housing and Urban Development and the Census Bureau. Single-family starts increased by 5.7% (1.22 million SAAR).
In combination, these housing numbers suggest that while consumers remain eager to buy and builders are making headway in creating more inventory, costly construction materials and rising mortgage rates could be limiting sales. The average 30-year mortgage rate tracked by Freddie Mac in February was 3.76%, up from 3.45% in January, and it topped 4% during the most recent week.
“The inventory of existing homes for sale remains near a historic low, and a new home at the right price, is a pretty good substitute,” said First American Chief Economist Odeta Kushi, in an email. “Yet, as building input costs go up, they are often being passed on to the buyer in the form of higher new home prices at a time when mortgage rates are rising..”
The average new-home loan size increased to $432,359 in February from $426,954 in January, reflecting the rising cost of housing, according to the MBA. Nearly 77% of builder mortgage applications were conventional loans. The remaining applications were for government products like Federal Housing Administration-insured loans (12.9%), and financing guaranteed by the Department of Veterans Affairs (9.9%).
“Over the last three months, mortgage rates have increased over 70 basis points, and combined with elevated sales prices, that is putting a weight on purchase activity,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.
Nevertheless, some home construction companies have reported robust consumer interest through February. Lennar Corp.’s orders between Dec. 1 and Feb. 28 totaled 15,747, outperforming analysts’ consensus estimate of 14,987 due to demand fueled in part by a shortage in the supply of resale homes.
However, overall single-family builder confidence dropped by two points in March to 79, according to the NAHB/Wells Fargo Housing Market Index.
The surge in starts likely reflects, in part, a jump in home sales and residential construction lending late last year as many borrowers rushed to lock loans before rates rose, according to Fannie Mae Chief Economist Doug Duncan.
“What remains to be seen, however, is how housing reacts moving forward as the effects of upward-moving mortgage rates begin to be felt,” he said in an email. “Given the historical relationship to mortgage rate changes, we wouldn’t expect recent rises to meaningfully dampen housing demand for some months.”
