NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the Census Bureau reveals that 70.8% of new home sales in 2016 were financed with conventional products—up from the most recent trough of 58.5% in 2010. Conversely, over the same period, the share of new home sales financed with FHA mortgages has fallen from 25.1% to 15.7%. FHA loan market share tends to decrease as economic conditions improve and lending conditions ease, as a larger share of buyers qualify for conventional loans.
Census data and NAHB calculations show that new home sales backed by FHA products fell to 18,000 (-2,000) in the fourth quarter of 2016, though market share held steady at 14%. Market share fell to 15% in the second quarter of 2013 after reaching a high of 28% in the first quarter of 2010, and has averaged 14.4% ever since.
It is worth adopting some caution associated with the Census market share 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, over the long run the current FHA-share is one-half the 28% share determined for the first quarter of 2010 but still elevated compared to the 2002-2003 average of 10%.
Cash-based transactions for the fourth quarter made up 5.6% of sales and have hovered between 5%-6% over the last two years. However, in contrast to new home sales, cash purchases constitute a considerably larger share of the existing home market—21% in December—according to estimates from the National Association of Realtors.
It is also worth noting that a different measure from CoreLogic shows a higher market share for cash sales for new construction: 15.9% in October.
VA-backed loans were responsible for 8.7% of new home sales during the fourth quarter of 2016; this share was up from 8.3% (revised) in the third quarter but, like other groups, fell in nominal terms.
Conventional financing has expanded as the housing recovery has grown. The market share of new home sales with conventional financing was 62.2% in 2009 and 72.2% in the fourth quarter of 2016. This share has remained between 69% and 75% over the past 3½ years.
Different sources of financing serve distinct market segments, which is revealed in part by the median new home price associated with each. For the fourth quarter, the national median sales price of a new home was $308,500. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $335,500, $214,200, $269,700, and $344,400, respectively.