New-Home Mortgage Applications Soar In January as Housing Starts Stumble

The rally in new-home demand isn’t letting up as homebuyers facing inventory challenges on the resale market turned to new construction to realize their homeownership dreams.

Mortgage applications for new-home purchases jumped 19.1% in January compared to a year ago and rose 38% month over month, according to the January Mortgage Bankers Association (MBA) Builder Application Survey.

“Applications for new home purchases were strong in January, as newly built homes remained an attractive option for prospective homebuyers who looked to take advantage of lower mortgage rates during the month,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.

Kan noted that the non-seasonally adjusted index “was the strongest January reading in the survey’s history.” 

Conventional loans accounted for the lion’s share (64.5%) of all loan applications in January. Meanwhile, the FHA, VA and USDA share of total mortgage applications was 24.8%, 10.3% and 0.4%, respectively.

The average loan size for new-home purchases was $401,282 in January, down from $405,368 in December 2023, the MBA reported.

New-home sales get a boost 

The seasonally adjusted annual pace of new-home sales notched 700,000 units in January, the highest level since October 2023, according to the MBA. 

New-home sales have been a silver lining in an otherwise gloomy housing market. That’s because there’s an ongoing shortage in the existing housing stock as fewer homeowners seem reluctant to give up their low COVID-19-era mortgage rates.

With continuing affordability pressures added to the mix, builders have capitalized on hungry buyer demand in the last year by offering incentives like rate buy-downs to attract new business. However, new data shows that builders aren’t as keen to offer those perks.

Housing starts see sharpest decline in nearly 4 years

While mortgage applications for new homes saw gains, U.S. housing starts slumped 14.8% in January from December’s revised rate of 1.331 million, according to data from the U.S. Census Bureau. On an annual basis, housing starts dipped 0.7%.

Single‐family housing starts in January posted a rate of 1.004 million, down 4.7% over the previous month’s figure (1.054 million)

Building permits also took a hit, down 1.5% in January to a seasonally adjusted annual rate of 1.47 million from December’s revised figure of 1.49 million, Census reported. However, the January rate is 8.6% higher than a year ago.

Builder confidence soars to highest level since August 2023

Despite a dismal start to new construction projects in 2024, builder confidence jumped four points to 48 in February, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the highest reading since August 2023 and the third-straight monthly gain.

“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said Alicia Huey, NAHB’s chairperson, in a news release. “And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”

With the Federal Reserve poised to cut rates in the back half of the year, the NAHB projects that single-family housing starts will grow 5% in 2024, NAHB Chief Economist Robert Dietz noted in a statement.

“But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year.”

A quarter (25%) of builders said they cut home prices in February, down from 31% in January and 36% in November and December, the NAHB reported. The share of builders sweetening new-home deals with an incentive also dipped to 58% in February—the lowest share since August 2023. 

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