Mortgage Applications For New Homes Soar Year Over Year Despite Seasonal Dip

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With homeowners who have low mortgage rates sitting on the sidelines, mortgage applications for newly built homes are surging.

Mortgage applications for new home purchases rose 22.2% in December compared to a year ago, according to Mortgage Bankers Association (MBA) data from December. Applications decreased by 4% from November. The change doesn't include adjustments for typical seasonal patterns.  

"The low level of existing homes for sale continues to divert prospective buyers to newly built homes," MBA Vice President and Deputy Chief Economist Joel Kan said. "Mortgage applications for new homes showed a 22% annual gain in December — the 11th consecutive year-over-year increase in applications."

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In addition to an increase in mortgage applications for newly built homes, homebuilders showed more optimism. The number of new home permits pulled in December was up, but homebuilders started work on slightly fewer homes than in November, according to a report from the Census Bureau and the Department of Housing and Urban Development.

While housing starts fell 4.3% from the November annual rate of 1.53 million, homebuilders pulled 1.9% more permits than the 1.47 million in November.

"Falling mortgage rates should jump-start the demand for housing in the coming months," LPL Financial Chief Economist Jeffrey Roach told U.S. News & World Report. "Despite the month-over-month decline in December starts, construction activity remains close to prepandemic levels."

Owners of existing homes are reluctant to put their residences on the market because they don't want to lose the low mortgage interest rates they locked in when they bought. That's resulting in a low inventory of existing homes, which is boosting sales of new homes.

Builders also have been offering incentives such as mortgage buydowns and upgrades, but that seems to be declining. Even so, 31% of builders reported cutting home prices in January, down from 36% in the previous two months.

"The market has tailwinds including the fact that mortgage rates dropped in December and the demand for housing remains high because overall new housing starts remain below household formation levels," said Kelly Mangold of RCLCO Real Estate Consulting. "Looking ahead, buyers who have been sidelined in 2023 may enter the market in 2024 if conditions improve, and lower rates will bring increased affordability to buyers."

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