NAHB analysis of the most recent Census numbers reveals two consecutive quarters of higher market share of FHA-backed mortgages for the new home sale sector. This development comes after a reduction in FHA premiums announced at the start of 2015.
Despite the surprising drop for the pace of new home sales in June (down 6.8%), the strong non-seasonally adjusted sales level for April (revised to 50,000 homes) pushed total sales for the second quarter of 2015 to a post-recession high of 143,000. This is according to data from the Census Bureau’s Quarterly Sales by Price and Financing and NAHB calculations.
New home sales due to FHA-backed loans increased to a quarterly count of 100,000 and a market share of 16% for the second quarter according to the Census numbers. This is higher than the approximate share of 11% from a year prior.
It is worth adopting some caution associated with these estimates. In particular, the statistical error associated with the FHA, cash, and VA sales estimates from this data set are relatively high. This reduces the reliability of measures of short-term market changes.
Mindful of this limitation, 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. The FHA share has fallen as the conventional financing share recovered. However, the share increased from 10% to 16% from the end of 2014 to the start of 2015.
A likely reason for this recent increase was the announcement of changes for the FHA mortgage insurance premium (MIP), reducing annual mortgage insurance premiums by 0.5 percentage points from 1.35 percent to 0.85 percent. Prior to this announcement and since 2010, the annual MIP on a typical FHA loan nearly tripled and the upfront MIP increased 75 basis points. Further, FHA had terminated the policy that allowed borrowers to stop paying mortgage insurance premiums after their loan reaches 78 percent of its original value.
Cash-based transactions for the second quarter made up just under 6% of sales for a total of 8,000 homes. During the 2002-2003 period, cash sales made up only 4% of purchases. However, in contrast to new home sales, cash purchases constitute a considerably larger share of the existing home market – 22% in June according to estimates from the National Association of Realtors. It is also worth noting that another slightly different measure from CoreLogic shows a higher market share for cash sales for new construction: 15.3% in April.
VA-backed loans were responsible for about 8% of new home sales during the second 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 came in at approximately 70% for the second 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 second quarter, the median new home price due to FHA financing was $225,200. The median price for VA-backed loans was $263,700.
Conventional mortgage financing had a median price of $302,300.
Finally, the median price for cash purchases for the first quarter was $306,700.