FHA-backed Loans Finance Smallest Share of New Home Sales Since 2014

NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the Census Bureau reveals that FHA-backed loans were responsible for 11.9% of new home sales during the second quarter of 2017. The share of sales financed with FHA-backed mortgages has fallen five percentage points over the past four quarters and is below 12% for the first time since the fourth quarter of 2014.

After falling to 4.5% in the first quarter of 2017, 6.5% of new home sales in the second quarter of 2017 were purchased with cash. The share of new home sales financed with conventional mortgages rose to 72.6% as the FHA share fell more than two percentage points.

Census data and NAHB calculations show that new home sales backed by VA products rose to 15,000 (+1,000) in the second quarter of 2017, though market share declined from 9.0% to 8.9%. The market share of VA loans averaged just 2.9% between the 2001 recession and the Great Recession, while share has averaged 9.3% since the U.S. economy came out of recession in 2009.

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 less than half its 28% share from the first quarter of 2010 but still elevated compared to the 10% average of 2002-2003.

Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. Roughly 18% of existing home transactions were all-cash sales in June—the smallest share since June 2009—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: 17.7% in January.

Conventional financing has expanded as the housing recovery has continued. The market share of new home sales with conventional financing was 62.2% in 2009 and 72.6% in the second quarter of 2017. This share has remained between 68% and 75% over the past four years.

Different sources of financing serve distinct market segments, which is revealed in part by the median new home price associated with each. In the second quarter, the national median sales price of a new home was $317,200. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $340,100, $242,100, $287,100, and $314,900, respectively.



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