Mortgage applications for new home purchases have seen a significant increase in August, according to data from the Mortgage Bankers Association (MBA). The numbers rose by 4.4 percent from 2023, continuing a trend of year-over-year growth. This growth can be attributed to the drop in mortgage rates, with the Federal Reserve expected to announce an interest rate cut. Joel Kan, the MBA’s vice president and deputy chief economist, stated that the decline in rates contributed to the uptick in new home sales activity, particularly among first-time buyers.
Freddie Mac reported that the weekly average for 30-year mortgage rates was at 6.2 percent as of September 12, nearly 1 percentage point lower than a year ago. This is also 0.15 percent lower than the previous week and the lowest level since February 2023. The lower rates have made newly built homes more attractive to homebuyers, leading to an increase in new home sales. The Federal Housing Administration’s share of purchase applications reached a record high of 29.6 percent, and estimated new home sales increased by almost 15 percent over the month.
While the demand for new homes is high, the supply is not keeping pace. According to brokerage Redfin, the housing supply in the United States has risen by nearly 17 percent from 2023 levels but is still down by 30 percent from pre-COVID-19 pandemic levels. This limited supply has resulted in an increase in home prices, with a 0.5 percent month-over-month increase in August, the largest since April. Redfin Senior Economist Sheharyar Bokhari noted that if mortgage rates continue to fall, price growth is likely to pick up as more prospective homebuyers enter the market.
The upcoming Federal Reserve report on rate cuts is eagerly awaited by potential homebuyers. The current benchmark interest rate stands at a 23-year high of 5.25-5.50 percent, and there is speculation that the Fed will announce a cut. Fed Chair Jerome Powell has indicated that the “time has come for policy to adjust,” and the timing and pace of rate cuts will depend on incoming data and the evolving outlook. Some experts predict a 25 basis points cut, while others suggest a larger 50 basis points cut.
In addition to the drop in mortgage rates, the nation’s inflation rate has also slowed to 2.5 percent in August, the lowest since February 2021. This decrease in inflation, along with an increase in mortgage credit availability, has contributed to a loosening of lending standards. The MBA’s index measuring credit availability reached its highest level since July 2022.
The ability and confidence of builders also play a crucial role in the housing supply. Builder confidence in the U.S. housing market rose in September, according to the National Association of Home Builders and Wells Fargo. The index measuring current sales conditions and future expectations showed an increase, indicating a positive outlook for the housing market.
Overall, the combination of lower mortgage rates, increased credit availability, and builder confidence has contributed to the growth in new home purchases. However, the limited supply of new homes remains a challenge, leading to an increase in prices. The upcoming Federal Reserve report on rate cuts will likely have a significant impact on the housing market, as potential homebuyers eagerly await the announcement.