First Quarter: Sources of New Home Sales Financing

April 23, 2014

The share of new single-family home sales purchased using Federal Housing Administration (FHA) backed mortgages continued to fall at the start of 2014.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing, the onset of the housing crisis in 2007 led to a decline in the share of new home sales due to conventional mortgage financing and increases in the shares due to mortgages backed by the FHA and the Department of Veteran’s Affairs (VA), as well as cash purchases.

new home sales financing

For the first quarter of 2014, the share of cash purchases rose slightly to 7.5% from just more than 7% during the prior quarter. The high point for cash purchases occurred in the third quarter of 2011 when the market share was almost 8% of sales. Thus, the cash share of new single-family home sales is down somewhat from post-recession peaks but remains elevated compared to more normal periods (e.g. approximately 4% share during 2002-2003).

In contrast, cash purchases constitute a considerably larger share of the existing home market – 33% of sales in March 2014 for example.

It is worth noting that another measure of cash sales for total new construction from CoreLogic shows a higher level of cash sales than the Census: 17.7% in December 2013.

New home sales due to FHA-backed loans fell to 13% of the market during the first quarter. This is down from 27.6% in the first quarter of 2010 but above the 10% 2002-2003 average. As the conventional mortgage financing share has risen, the share of new single-family home sales due to FHA-backed mortgages has declined. Falling FHA loan limits will likely place additional downward pressure on this share in 2014.

VA-backed loans were responsible for about 7.5% of new home sales during the first quarter of 2014.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price allocable to each. For the fourth quarter, the median new home price due to FHA financing was $222,600. The median price for VA-backed loans rose to $264,000.

Conventional mortgage financing had a median price of $276,900.

Finally, the median price for cash purchases for the fourth quarter was $320,100.

New Home Sales Falter

April 23, 2014

Census and HUD reported March new home sales were down 14.5% in March to a seasonally-adjusted annual basis of 384,000, the lowest level since July 2013. Three of the four regions also saw a decline while the Northeast saw a small (3,000 homes) increase. The US is down year-over year by 13.3% and all four regions also experienced an annual decline.

Home prices, on the other hand, rose 12.6% year-over-year to $290,000, the highest ever recorded. The higher prices are due to sales sliding up the price spectrum. The share of homes sold between $300,000 and $500,000 rose from 30% in the fourth quarter of 2013 to 37% in March. The share selling for less than $200,000 dropped 3 percentage points.

Even as mortgage rates soften a bit, potential home buyers with even small dings in their credit background are unable to qualify for a mortgage and so are out of the market. Since they tend to buy more modestly priced homes, that end of the spectrum has seen lower sales and the whole market has lower demand.

Congress is working on at least some solutions to the uncertainty in the mortgage market by defining the government’s place in the secondary market. A replacement for Fannie Mae and Freddie Mac is being seriously discussed in both chambers and a markup is scheduled in the Senate this month. While that will not solve all the uncertainties and tightness in the market, it will go a long way to providing a path to a more normal, sustainable conduit for mortgages from originator to investor.

The first quarter 2014 has been rocked by unusually cold and wet weather causing a drop in construction and some odd sales patterns. January was better than expected, February was in line with expectations and March was lower than expected. The average is close to what NAHB expected: 434,000 actual versus a forecast of 438,000. Looked at from a quarterly basis, activity is in line with the modest recovery. The trend downward for two months is the worrisome part. Pent up demand, relatively low mortgage rates and still good affordability support confidence that sales will improve as 2014 evolves.

New Home Sales (000s)

House Prices Continue Their Ascent

April 22, 2014

Data released by the Federal Housing Finance Agency (FHFA) indicates that house prices rose by 0.6% on a seasonally adjusted basis over the month of February 2014. In addition, previous estimates of house price gains in January, 0.5%, and in December, 0.7%, were marked down slightly; to 0.4% and 0.6% respectively. February marks the 3rd consecutive monthly increase and the 24th increase in the past 25 months for FHFA’s House Price Index – Purchase Only. Over this 25-month period, the House Price Index – Purchase Only has risen by 15.0% and is now at roughly the same level as in June 2005.


National house price appreciation is taking place because most areas of the country are experiencing house price increases. However, many regions of the country recorded monthly house price changes, up or down, that deviated significantly from the 0.6% national average. As the figure below illustrates, house prices in February rose in 6 of the nine Census Divisions, with 4 of these divisions, the South Atlantic, Pacific, Mountain, and West South Central divisions, posting monthly gains greater than 1.0%. However, these gains were partly offset by declines in other areas of the country. House prices in New England fell by 2.5% over the month while prices in the Middle Atlantic division declined by 1.6%. Meanwhile, house prices in the West North Central were unchanged over the month.


For full histories of the FHFA US and 9 Census divisions, click here.

Existing Sales Remain Flat

April 22, 2014

Existing home sales decreased 0.2% in March, and fell 7.5% from the same period a year ago. The National Association of Realtors (NAR) reported March 2014 total existing home sales at a seasonally adjusted rate of 4.59 million units combined for single-family homes, townhomes, condominiums and co-ops, down from 4.60 million units in February.
Existing Home Sales March 2014

The Northeast and Midwest increased by 9.1% and 4.0% respectively from February, while the South and West decreased 3.0% and 3.7% respectively. Year-over-year, all regions decreased, ranging from a 3.0% drop in the South to a 13.4% decrease in the West. Seasonally adjusted condominium and co-op sales fell 1.8% in March, and were down 8.3% from the same period a year ago.

First-time buyers comprised 30% of March 2014 sales, up from 28% in February and were unchanged from last March. The January first-time buyer share of 26% was the lowest since NAR began reporting that share monthly in October 2008. The historical average first-time buyer share is about 40%. Tight lending conditions continue to buffet first-time buyers and NAR points to high levels of student debt and tight inventory in the lower price ranges as important factors.

Total housing inventory increased 4.7% in March to 1.99 million existing homes. At the current sales rate, the March 2014 inventory represents a 5.2-month supply, up from a 5.0-month supply in February and up from a 4.7-month supply a year ago. On a positive note, NAR also reported that the March median time on market for all homes was 55 days, down from 62 days in February and 62 days during the same month a year ago. NAR reported that 37% of homes sold in March were on the market less than a month, compared to 34% of all homes sold in February.

As the market cures, the share of distressed sales decreased to 14% of March sales, down from 16% in February and 21% a year ago. Distressed sales are defined as foreclosures and short sales sold at deep discounts. All cash sales comprised 33% of March transactions, down from 35% in February, but up from 30% the same period a year ago. Individual investors purchased a 17% share in March, down from 21% in February and 19% a year ago. Some 71% of March investors paid cash, up from 73% last month.

The median sales price for existing homes of all types increased to $198,500 in March from a downwardly revised $188,300 in February, and was up 7.9% from a year ago. The median condominium/co-op price soared to $200,800 in March, up from a revised $185,100 in February and was up 11.6% from March 2013.

The Pending Home Sales Index fell 0.8% in February to the lowest level since October 2011. Therefore, it was expected that March existing home sales would remain flat. The decline in the March investor share suggests that the continued run up of existing home prices will eventually make these homes less appealing for investors, and a future withdrawal of that demand will further depress existing sales. NAR continues to make the point that increased new home construction will free up existing inventory for first-time buyers.

While existing home sales are down year-over-year, new home sales continue to post year-over-year gains (tempered by recent weather impacts) as investor activity cools. The new home sales numbers will be released tomorrow.

Smaller Banks Are the Largest Source of AD&C Lending

April 21, 2014

Data from the FDIC indicate that smaller financial institutions, typically community banks, are the most common sources of lending for home building acquisition, development and construction (AD&C) loans. This trend strengthened during years of the housing crisis.

The FDIC data are split into two sources: commercial banks and savings institutions. As of the final quarter of 2013, total 1-4 residential construction and development loans held by commercial banks summed to $38.9 billion. Such loans from savings institutions represented a smaller source: $4.8 billion.

Commercial bank AD&C shares 2013

With respect to commercial banks, the fourth quarter 2013 FDIC data reveal that 62% of home building AD&C lending was held by banks roughly matching the community bank standard of possessing less than $10 billion in total assets. This lending was decentralized as there are almost 5800 such institutions, although it is not possible to determine how many held residential AD&C loans. In contrast, there were 90 commercial banks with more than $10 billion in assets, holding a still significant $14.7 billion in home building AD&C loans.

Nonresidential AD&C lending, which includes some land development financing and commercial real estate, is more likely to be held by larger banks, as the chart above indicates. In fact, more than half (56%) of such loans were held by commercial banks with more than $10 billion in assets.

Change in AD&C loan share_commercial banks_0713

A larger share of residential AD&C was held by larger institutions prior to the recession. The chart above notes the change in market share from the end of 2007 to the end of 2013. While the share of nonresidential AD&C held by large banks increased over this six-year period, the market share of residential AD&C shifted to smaller banks. For example, at the end of 2007, 52% of home building AD&C was held by banks with more than $10 billion in assets, a swing of 14 percentage points of market share from 2007 to 2013.

Savings institutions AD&C shares 2013

The smaller savings institutions side of the market tells a similar story. At the end of 2013, 86% of home building AD&C loans held by savings institutions was controlled by institutions with less than $5 billion in assets. A noticeable difference is that both residential and nonresidential AD&C lending shifted, in terms of market share, toward smaller savings institutions from the end of 2007 to the end of 2013, as the following chart demonstrates.

Change in AD&C loan share_savings institutions_0713


Characteristics of Owners and Renters

April 18, 2014

An individual’s tenure choice (whether to rent or own) is based on a number of factors including age, income, and housing supply. It is therefore not surprising that characteristics differ markedly by tenure. The purpose of this post is to describe the typical household by tenure.

Age is an important component of tenure choice. Younger individuals are less likely to have the income necessary to purchase a home. In addition, marriage, which often precedes home ownership, typically occurs in the late twenties. In 2013, the Census estimates the median age at first marriage for males is 29 while the median age at first marriage for females is 26.6.

The age distribution of householders by tenure is provided below. A householder is defined by the Census as the person in whose name the housing unit is owned or rented.


According to the 2012 American Community Survey (ACS) ten-year age breakouts, the largest share of owners falls within the age bracket between 45 to 54 years. Nearly 17 million or 22.7% percent of all owners are between 45 to 54 years. The largest share of renters falls within the age bracket between 25 to 34 years. Just over 11 million of 26.4% of all renters are between 25 to 34 years.

Income, another critical component of tenure choice, is also provided in the 2012 ACS. The median income for rent-occupied households was $31,888. The median income for owner-occupied households was more than twice that amount at $65,514.

The income measure provided includes all individuals in the household. Therefore, some of the difference is due to household size. According to the 2012 ACS, the average renter-occupied household size, which includes children, was 2.53 occupants. The average owner-occupied household size, which also includes children, was slightly higher at 2.7 occupants.

Additionally, a large share of renter-occupied units is single-income households. Nearly ten million or 26.1% percent of all renter-occupied units are single-income households. Only 13.3% of owner-occupied units are single-income households. The largest share of owner-occupied units is married households at 60.1%.

According to the Bureau of Labor Statistics 2012 Consumer Expenditure Survey (CE), average income for married couples with children was $98,104. The average income for all married couples was $90,393 in 2012.


The data described above from the 2012 ACS presents a brief snapshot of housing characteristics by tenure. The typical owner-occupied household is headed by an individual between 45 to 54 years.  The median household income in 2012 was $65,514. The average household size was 2.7 occupants with the most common household type being married.

The typical renter-occupied household is headed by an individual between 25 to 34 years.  The median household income in 2012 was $31,888. The average household size was 2.53 occupants with the most common household type being single. Understanding these differences can help those interested in meeting the needs of occupants.


New Homes are Less Expensive to Maintain

April 17, 2014

April is new homes month. And one of the virtues of a newly constructed home is the savings that come from reduced energy and maintenance expenses.

In a previous analysis, we used data from the 2009 American Housing Survey (AHS) to offer proof. The AHS classifies new construction as homes no more than four years old.

For routine maintenance expenses, 26% of all homeowners spent $100 or more a month on various upkeep costs. However, only 11% of owners of newly constructed homes spent this amount. In fact, 73% of new homeowners spent less than $25 a month on routine maintenance costs.

monthly maint costs

Similar findings are available for energy expenses. According to the 2011 AHS, on a median per square foot basis, homeowners spent 81 cents per square foot per year on electricity. Owners of new homes spent less: 68 cents per square foot per year. For homes with piped gas, homeowners spent on average 50 cents per square foot per year. Owners of new homes spent just 34 cents per square foot per year.

The 2011 data show similar results for various other utilities. For water bills, homeowners averaged 28 cents per square foot per year, while owners of new homes averaged 22 cents.  For trash bills, the median for all homeowners was 15 cents per square foot per year, while for new construction the median was 13 cents per square foot per year.

These data highlight that a new home offers savings over the life of ownership due to reduced operating costs. And in fact, these reduced costs result in lower insurance bills as well. The median cost for all homeowners of property insurance is 39 cents per square foot, while it is only 31 cents per square foot for owners of new homes.

These reduced expenditures represent one of the many reasons that the current system of appraisals needs updating to reflect the flow of benefits that come from features in a new home.


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