Mortgage applications for new home purchases declined 3% month-over-month in May, according to the Mortgage Bankers Association's Builder Application Survey. The drop came as average mortgage rates on conforming 30-year fixed loans topped 6.5%, dampening buyer enthusiasm.
The year-over-year comparison showed some resilience, with applications rising 3.8% versus the same period last year. The data suggests the spring home-buying season is losing steam as affordability pressures mount, though demand remains above the depressed levels of early 2024.
Rates crossing the 6.5% threshold directly impact monthly payments, reducing the purchasing power of typical borrowers. For a $400,000 loan, the difference between a 6% and 6.5% rate adds roughly $130 to the monthly payment, a significant hurdle for first-time buyers.
Builder sentiment has softened as higher financing costs slow foot traffic and order cancellations creep higher. Inventory of new homes remains elevated in some Sun Belt markets, giving buyers more negotiating leverage than in recent cycles.
Economists at the MBA cautioned that the data point is a single monthly reading and could be revised. The survey covers only new home applications, not existing home sales, which account for the bulk of transactions.