Conventional Financing of New Home Purchases Declines as VA-Backed Sales Gain Market Share

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NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the U.S. Census Bureau reveals that VA-backed sales made up 9.1% of new home sales in the first quarter of 2020, the largest market share since early 2016. In addition, cash sales (4.3%) made up their smallest share since Q3 2009 (3.8%).

Mortgages backed by the VA accounted for 17,000 of total sales (186,000) in Q1 2020, the highest number on record.

Conventional loans accounted for 68.3% of new home sales in the first quarter of 2020, a 1.2 percentage point decrease from Q4 2019 (revised). The last time the percentage of new home sales financed with conventional mortgages was greater than 70.0% was Q4 2018 (74.6%).

FHA-backed sales made up 18.3% of new home sales in the first quarter of 2020 as their four-quarter moving average (MA) market share ticked up 0.3 percentage points (ppts) to 17.9%.

As FHA market share increases, conventional loan market share typically falls and vice versa. Over the past five quarters, the share of new home sales (four-quarter MA) financed with conventional loans has decreased by 5.8ppts while FHA’s market share has climbed 5.6ppts. The most recent peak in the conventional loan share occurred in the same quarter (Q2 2018) as the most recent trough in the share of FHA-backed sales.

Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. According to estimates from the National Association of Realtors, roughly 19% of existing home transactions were all-cash sales in December 2019, down from 20% in February and 21% in March 2019.

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.

Mindful of these limitations, over the long run the current conventional loan share is 25.5% lower than its 91.7% high reached in 2006 and 0.7% higher than its average since the end of the Great Recession.

Different sources of financing also serve distinct market segments, which is revealed in part by the median new home price associated with each. In the first quarter, the national median sales price of a new home was $327,100. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $364,500, $241,700, $310,000, and $312,100, respectively.



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