Mortgage demand in the US is increasing as a result of new house sales.

Mortgage rates rose again last week. However, the rise had little effect on mortgage demand since purchasers preferred freshly built homes.

According to the Mortgage Bankers Association's seasonally adjusted index, total mortgage application volume increased 3% over the prior week. A special modification was made for the Juneteenth holiday.

Mortgage applications for house purchases increased 3% for the week but were 21% down year on year. Given still-high mortgage rates, these applications have grown for a third week in a row, reaching their highest level since early May.

"New home sales have been driving purchase activity in recent months as buyers look for options beyond the existing-home market," said Joel Kan, MBA's vice president and deputy chief economist, in a statement. "Existing-home sales were hampered by a lack of for-sale inventory, as many potential sellers held on to lower-rate mortgages."

According to a study released Tuesday by the U.S. Census Bureau, sales of newly constructed houses increased 12% over April and were 20% higher than in May 2022. Builders are stimulating demand in part by providing incentives such as lower borrowing rates.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan amounts of $726,200 or less rose to 6.75% last week, up from 6.73%, with points continuing at 0.64 (including the origination charge) for loans with a 20% down payment. The average rate for 30-year fixed-rate mortgages with jumbo loan sums (more than $726,200) jumped to 6.91% from 6.80%.

"The spread between the jumbo and conforming rates widened to 16 basis points, marking the third week in a row that the jumbo rate was higher than the conforming rate," Kan explained. "To put this in context, the jumbo rate averaged around 30 basis points less than the conforming rate from May 2022 to May 2023."

The recent regional bank failures have caused the gap to widen and the jumbo rate to rise. Because Fannie Mae and Freddie Mac do not acquire jumbo loans, lenders keep them on their balance sheets. Bank lending has tightened significantly, particularly at smaller banks, resulting in higher rates.

Refinance applications increased 3% for the week but were 32% lower than the same week last year. Today, the great majority of borrowers have mortgages with interest rates around 4%.

(Sources: cnbc.com)