Mortgage applications for new homes increased for the second consecutive month to start 2023, driven by lower mortgage rates in early February and typical seasonal patterns.

The Mortgage Bankers Association’s (MBA) Builder Application Survey (BAS) indicates mortgage applications increased 1.2% on a year-over-year basis in February. Applications increased 4% from January, a month where application activity also had seen a boost.

“The uptick in new-home purchase applications showed a seasonal pickup, and that segment of the market continues to show healthier activity than the broader purchase market, which is still showing annual declines over 30%,” MBA vice president and deputy economist Joel Kan says. “Buyers, however, remain extremely sensitive to movements in mortgage rates and the broader economy. Mortgage rates picked up in February, which put a damper on housing activity.”

The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 688,000 units in February, a 5.1% decline compared with January. On an unadjusted basis, the MBA estimates there were 61,000 new-home sales in February, a 3.2% month-over-month decline.

“The 5% drop in estimated new-home sales pace for February to 688,000 units reversed a January gain when buyers had a brief respite from rising mortgage rates, combined with discounts and concessions from sellers,” Kan says. “The decline in new-home sales is likely less than that for existing-home sales as home builders are motivated to sell homes in their construction pipeline.”

According to the MBA, conventional loans composed 69.9% of loan applications in February, FHA composed 20% of loans, VA represented 9.8% of loans, and RHS/USDA accounted for 0.3% of loan applications during the month. The average loan size of new homes increased $5,322 on a month-over-month basis to $401,631 in February.

The MBA’s BAS tracks application volume from mortgage subsidiaries of home builders across the country. From the data collected, MBA is able to provide an early estimate of new-home sales volumes at the national, state, and metro level.