Regional Differences in New Home Financing

According to NAHB analysis of the 2013 Census Bureau Survey of Construction (SOC) data, use of non-conventional financing methods to purchase new homes varies widely across the country. The West South Central divison is most heavily reliant on mortages insured by the Federal Housing Administration (FHA) with the share of FHA-insured loans reaching almost 20 percent. At the same time, the share of FHA-insured loans is under 5 percent in Midwest and Northeast. New England stands for having the highest share of cash purchases.

It is well known that the share of conventional loans (mortgage loans not guaranteed by any government agency) dropped significantly during the recent housing crisis and alternative forms of financing grew in importance. The 2013 SOC data show that mortgage markets remain under stress with shares of alternative forms of financing elevated, though below their current peaks.

For new single-family homes started in 2013, conventional loans account for about two thirds of financing market. Mortgages insured by the Federal Housing Administration (FHA) and loans guaranteed by the Veteran’s Administration (VA) make up slightly under 13 and 6 percent of the market, respectively. Cash purchases account for additional 11 percent. Other types of financing, including Rural Housing Service, Habitat for Humanity, loans from individuals, State or local government mortgage-backed bonds and other types of financing, account for 4 percent.

Availability, access and ultimately usage of various types of financing differ across the nine US divisions. Conventional loans play a bigger role in the neigboring East North Central and Middle Atlantic divisions, where their share is around 80 percent. They are less common in the West South Central and Mountain divisions where their share does not reach 60 percent. Similarly, the share of conventional loans is below the national average in the Pacific and South Atlantic divisions, both under 64 percent.

The same four divisions where conventional loans are hard to obtain stand out for their heavy reliance on the FHA-insured loans. All four have shares of FHA-insured loans above the national average, ranging from more than 14 percent in the Mountain Division to almost 20 percent in the West South Central division. At the same time, the Pacific, Mountain and coastal parts of South Atlantic divisions contain counties that faced some of the sharpest declines in FHA loan limits that went into effect on January 1, 2014. It is easy to predict that these regions will be hardest hit by the implemented decline in FHA loan limits.
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The role of VA-guaranteed loans is most important in the South Atlantic division where their share exceeds 9 percent. The Mountain divisions also reports the above national average share of nearly 8 percent. New England stands out for having the highest share of new single-family homes purchased with cash, 22 percent, that is double the national average. The East South Central division where about one third of new homes are built in rural areas outside of metropolitan areas reports the higest share of other types of financing, close to 8 percent, most likely through Rural Housing Service.
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