New home purchase activity weakened in September, with mortgage applications for new homes decreasing by 12% compared to August, according to the Mortgage Bankers Association (MBA) Builder Application Survey (BAS). Rising mortgage rates, which are negatively impacting builder confidence, permit activity, and activity in the resale market, is the chief cause of the decline, according to Joel Kan of the MBA.

Despite the month-over-month decrease, activity in September was still 14.9% higher than in September 2022.

“Applications for new home purchases decreased over the month but were 15% higher than a year ago, which is the eighth consecutive month of annual gains,” says Kan, the vice president and deputy chief economist for the MBA. “Demand for newly constructed homes remains relatively strong due to the persistent shortage of resale inventory, but increasing mortgage rates are impacting would-be buyers.”

Kan says the MBA’s estimate of new home sales fell to an annual pace of 634,000 units, the weakest sales pace since October of 2022. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other related factors.

The seasonally adjusted estimate for September sales is 9.7% lower than the August pace of 702,000 units. On an unadjusted basis, the MBA estimates there were 51,000 new home sales in September, a decrease of 13.6% from August.

By product type, conventional loans composed 65.1% of loan applications and the average loan size of new homes decreased to $397,550 in September from $398,092 in the previous month.

“The FHA share of applications reached 25% in September, the highest share in the survey dating back to 2013,” says Kan. “This is an indication that demand from first-time home buyers is still somewhat strong.”

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country.