Cash Sales Retreat as a Share of New Home Purchases

NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the Census Bureau reveals that cash sales accounted for just 4.8% of the total, down from 6.5% in the second quarter.

FHA-loans financed 14.3% of new home sales during the third quarter of 2017. As of the second quarter of 2017, the share of sales financed with FHA-backed mortgages had fallen five percentage points over the course of a year. After rising to 6.5% in the second quarter of 2017, 4.8% of new home sales in the third quarter of 2017 were purchased with cash. The share of new home sales financed with conventional mortgages rose to 72.8%, the highest share since the third quarter of 2016.

Census data and NAHB calculations show that new home sales backed by VA products fell to 11,000 (-4,000) in the third quarter of 2017, and market share declined from 8.8% to 7.5%. 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 data as they are estimates based on sample statistics. The statistical error associated with the FHA, cash, and VA sales estimates from this data set are relatively high, meaning that although the data are presented as single numbers, the true values may be substantially different.

For example, 21,000 new home sales in the third quarter were financed with FHA loans according to the Census release. However, because the sampling error of this segment is high, the data should be interpreted as a best guess of sorts. Based on the standard error provided, we can be 95% confident that the true number of FHA-financed new home sales may have been as low as 8,400 or as high as 33,600.

Similarly, while the data show 11,000 VA-backed new home sales in the third quarter, we can only be confident that true number falls between 5,720 and 16,280—a range of 10,560, or 96% of the reported value. This phenomenon is simply inherent in using sample data. Census revises the estimates based on more complete data in subsequent quarters, shrinking the range of uncertainty.

Mindful of these limitations, 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 20% of existing home transactions were all-cash sales in September, 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 72.8% in the third 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 $315,200. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $335,100, $227,600, $297,200, and $314,200, respectively.



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