Increase for New Home Sales Financed by FHA-Backed Mortgages

NAHB analysis of the most recent Census numbers reveals an increase for the share of newly-built homes financed with FHA-backed mortgages, along with a decline in cash-based sales.

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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.

First quarter 2015 data from the Census Bureau’s Quarterly Sales by Price and Financing indicate that count of cash-based new single-family home sales stood at 6,000 for the quarter or approximately 4% of total sales, down from 10% for the final quarter of 2014. During the 2002-2003 period, cash sales made up only 4% of purchases. However, the statistical error associated with the cash-based sales estimate is relatively high, so caution should be taken against putting too much emphasis on short-term changes for the measure. In contrast to new sales, cash purchases constitute a considerably larger share of the existing home market – 24% of sales per the National Association of Realtors report for March.

It is also worth noting that another measure from CoreLogic shows a higher market share for cash sales for new construction: 17.3% for January of 2015.

New home sales due to FHA-backed loans increased to a quarterly count of 91,000 and a market share of 16% for the first quarter according to the Census numbers. The first quarter market share estimate is higher than the 10% share recorded at the end of 2014.

The current FHA-share estimate is lower than the 28% share determined for the first quarter of 2010 but is higher than 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 generally declined.

VA-backed loans were responsible for about 9% of new home sales during the first quarter of 2015.

Conventional financing has expanded as the housing recovery has grown. The market share of new home sales with conventional financing was 62% in 2011 and is estimated to be 71% at the start of 2015. By a count of new home sales, conventional financing was associated with 91,000 new home sales for the first quarter.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price associated with each. For the first quarter, the median new home price due to FHA financing was $215,700. The median price for VA-backed loans rose to $261,400.

Conventional mortgage financing had a median price of $285,500.

Finally, the median price for cash purchases for the first quarter was $299,300.



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