New Home Sales by Financing: Falling FHA Share

January 27, 2014

The share of new single-family home sales purchased using conventional mortgage financing is rising, as the share of Federal Housing Administration (FHA) backed mortgages fell during 2013.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing, the onset of the housing crisis in 2007 led to a decline in the share of new home sales due to conventional mortgage financing and increases in the shares due to mortgages backed by the FHA and the Department of Veteran’s Affairs (VA), as well as cash purchases.

new sales by financing_4q13

For the fourth quarter of 2013, the share of cash purchases fell slightly to 6% from 7% during the prior quarter. The high point for cash purchases occurred in the third quarter of 2011 when the market share was almost 8% of sales. Thus, the cash share of new single-family home sales is down from post-recession peaks but remains elevated compared to more normal periods (e.g. approximately 4% share during 2002-2003).

In contrast, cash purchases constitute a considerably larger share of the existing home market – 32% of sales in December 2013 for example.

New home sales due to FHA-backed loans fell to 13% of the market during the final quarter of the year. This is down from 27.6% in the first quarter of 2010 but above the 10% 2002-2003 average. As the conventional mortgage financing share has risen, the share of new single-family home sales due to FHA-backed mortgages has declined. Falling FHA loan limits will likely place additional downward pressure on this share in 2014.

VA-backed loans were responsible for 7% of new home sales during the fourth quarter of 2013.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price allocable to each. For the fourth quarter, the median new home price due to FHA financing was $212,400. The median price for VA-backed loans was similar: $205,100.

Conventional mortgage financing had a median price of $276,600.

Finally, the median price for cash purchases for the fourth quarter was $261,000.


New Home Sales Take a Breather

January 27, 2014

Census and HUD reported new home sales for December were down7% to an annual rate of 414,000. The first estimate of 2013 annual sales rate shows sales advancing 16.4% and the highest since 2008. In addition, the fourth quarter new homes sales were virtually the same as the second quarter of 2013.

The NAHB/Wells Fargo Housing Market Index showed a similar anticipatory pattern of falling in the spring followed by a decline in sales in the summer. Likewise, the HMI faltered a bit in the fall followed by sales falling slightly from third to fourth quarter.

Regionally, the Northeast declined 36.4%, which may have been a result of brutally cold and snowy weather. The South and West also declined 7.3% and 8.8% respectfully, both to levels seen in the second quarter. The Midwest rose 17.6% on a monthly basis but November was unusually low.

Inventory fell to 171,000 or down 2.8% but because of the slower sales pace, the month’s supply increased to 5 months. The number of completed homes for sale remains near historic low levels at 40,000 compared to a more normal level of over 100,000. Median sales prices rose 4.6% with no particular shift in the distribution of sales price.

The momentary dip is more likely a residual effect of the jump in interest rates, unusual weather and a readjustment to more sustainable level of sales. NAHB expects new home sales in 2014 to pick up again and reach 600,000 for the year.

New Home Sales and NAHB HMI


New Home Sales Steady

December 24, 2013

New home sales for November declined a statistically insignificant 2.1% from an unusually high October.  The average for the first two month of the fourth quarter is the highest since mid-2008.  The previous three months were also revised upward by a total of 88,000 sales.  The report was mixed regionally with the Northeast and West rising 15.2% and 31.1% respectively.  The Midwest and South were down 26.55 and 9.1% respectively.  The decline in the South, the largest region in terms of sales, was from a high in October of 287,000, the highest since April 2008.

Inventories dipped to 167,000 representing a 4.3 months supply and the lowest months’ supply level since the first quarter of 2013.  Builders continue to behave prudently and banks continue to hold tight on lending to builders for acquisition, development and construction loans.

The steady increase in new homes sales after a pause in mid-year supports the expected sales of 600,000 new homes in 2014.


New Home Sales Up

December 4, 2013

The October new home sales report from Census and HUD showed a 25% increase over a low September level.  Both months were reported late and together because of the government closer in early October.  The 444,000 level reported for October brings sales back to the levels that were established earlier this year.  All four regions showed significant increases returning to levels at or above the second quarter averages.

The pause and decline in the third quarter appears to be a reaction to rising interest rates and the rising uncertainty around government debt and deficit resolution that led to the shut down in early October.  As rates fell back and the shut down ended, consumers returned to the market.  Even with the large variances, the 25.4% change is enough to be considered an increase at the 90% confidence level.

The inventory of new homes for sale dropped back to 183,000 as builders’ inventories suffered from relatively slow building trends in the last several months.  Because of the uptick in the sales rate, the months’ supply dipped to 4.9 months, the lowest since the second quarter.  The inventory of completed homes is particularly low at 42,000, up slightly from the third quarter and back to levels last seen in the first and second quarter.  The completed inventory is important to many potential home buyers who waited to be certain that their existing home sold and hence need a home ready for occupancy.

Home prices dipped 0.6% from a year ago (the data is not seasonally adjusted) and that appears to be a result of a rise in sales in the$150,000 to $199,999 range and a fall in sales $300,000 to $399,000 range.  Sales were up the most in the Midwest and South, also contributing to the explanation that the virtually no change in prices is driven by composition of sales rather than base home prices.

NAHB expects this sales level to sustain itself through the end of the year as pent up demand continues to feed the market, as interest rates remain low by historic standards and as the supply of existing homes for sale remains low.

October New Home Sales


Sources of New Home Sales Financing

September 23, 2013

While the sources of finance for new home sales have changed noticeably since the start of the Great Recession, cash sales remain more common for existing homes compared to new construction.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing, the onset of the housing crisis in 2007 led to a decline in the share of new home sales due to conventional mortgage financing and increases in the shares due to mortgages backed by the Federal Housing Administration (FHA) and the Department of Veteran’s Affairs (VA), as well as cash purchases.

sales by financing

For the second quarter of 2013, the share of cash purchases rose slightly to 7.4%. The high point for cash purchases occurred in the third quarter of 2011 when the market share was a somewhat larger 7.9%. In contrast, for August existing home sales, cash purchases totaled 32%, compared to 27% in August 2012. The cash share for new homes is smaller because cash buyers in the existing home market are looking for bargains for rental purposes, while for-sale new construction is dominated by owner-occupiers.

New home sales due to FHA-backed loans stood at 17% of the market for the second quarter. This is down from 27.6% in the first quarter of 2010 but above the 10% 2002-2003 average. The market share of FHA-backed loans was higher during the 2009-2010 period due to the federal homebuyer tax credit.

VA-backed loans were responsible for 7.4% of new home sales during the second quarter of 2013.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price allocable to each. For the second quarter, the median new home price due to FHA financing was $197,900. This is relatively unchanged from the average over the last two years of $199,700.

The median price for VA-backed loans was $273,300, higher than the two-year average of $234,100. Conventional mortgage financing had a median of $285,900, higher than the two-year average of $263,700.

Finally, the median price for cash purchases of new home sales rose substantially in the second quarter to $318,000. The two-year average is about $255,000. The rise in the price of the typical cash purchase reflects market mix issues, similar to force that have pushed up the size of a typical newly built single-family home: higher wealth buyers are in the market in greater concentration relative to other buyers, particularly younger, first-time buyers.

Additional annual data for this topic can be found in a recent NAHB study using information from the Census Survey of Construction.


Lost Home Sales

September 6, 2013

The long and deep housing recession left many homeowners remaining in place and potential first time home buyers continuing to rent or stay with parents or friends.

In a recent article, NAHB’s Heather Taylor reported the number and distribution of first time and repeat movers in American Housing Survey odd numbered years 2001 through 2011. The AHS reports 10 million purchased in the two years prior to the 2001 survey but home buying declined to 6.8 million households who purchased a home in the two years prior to the 2011 survey. Between 2001 and 2011, the population of individuals who could have potentially purchased a home increased by almost 20 million. Absolute levels for the most recent period and the average of the oldest two periods are summarized below.

table 1

Repeat buyers and first time buyers dropped out of the market in droves. In order to normalize the trend, the table below shows the propensity to purchase by dividing the number of purchases by the population of that age group.

table 2

The only cohort that increased home buying participation was the very small group 65 years old or older buying their first home. First time home buyers increased their share of all home buying because the group did not reduce its propensity to buy as much as repeat buyers. Repeat buyers already own a home so may have been more able to work around the normally expected move while first time home buyers were less able to postpone their purchase. First time home buyers may also have been taking advantage of low house prices and low mortgage rates while repeat buyers had to be concerned with sufficient equity and trading in a recently refinanced low rate mortgage.

More recent information suggests first time home buyers are a much smaller share of the home purchases as house prices begin to rise, as repeat buyers come back into the market, as investors compete for the same homes as first time home buyers want and as lending standards make it more difficult for young households with lower incomes to qualify for a mortgage.

If the same propensities to purchase from the early the period 2000-2003 remained in place in 2011, there would have been almost 4 million more home sales over the two-year period prior to the 2011 AHS. The table below details the householders’ age where those sales would have occurred.

table 3

The missing 2 million home purchases per year are the result of first time home buyers unable to qualify for a mortgage, with insufficient cash for a down payment, with large non-housing debts, with uncertain or low-paying employment and with a more mobile future. Without incoming first time buyers, trade-up buyers have a reduced market for their existing home. Similarly, repeat buyers may not be able to qualify for a mortgage, may have insufficient or no equity and may remain concerned about future home prices and mortgage rates.

Some of the postponed home purchases will be retrieved as the barriers diminish although it is difficult to gauge what share. Even if only half do return, that is an additional 1 million home sales in pent up demand on top of the recovering demand from a normal year’s flow.


Growing Share of Consumers Plan to Purchase a New Home

August 1, 2013

Measures of consumer confidence continue to report mixed results on a monthly basis. However, over time they are trending in the same direction. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index rose by 1 point in July to a seasonally adjusted level of 84.1. The final reading of consumer sentiment was revised up from the preliminary reading of 83.9 that was released earlier in the month. Meanwhile, the Conference Board reported that its Consumer Confidence Index fell by 1.8 points, 2.2%, on a month-over-month seasonally adjusted basis in July to 80.3.

The directionally opposite monthly movements recorded by the two measures of consumer confidence in the month of July reflect different conclusions about consumers’ expectations about future conditions. According to the University of Michigan’s Consumer Sentiment Survey, the 5 point increase in consumers’ assessment of current conditions, from an index level of 94 to an index level of 99, was only partially offset by the 1 point decline, 78 to 77, in their view of expected conditions. In contrast, the decline in consumers’ expectations of future conditions according to the Conference Board’s Consumer Confidence Survey, a 6 point drop from an index level of 91 to 85, more than offset the 5 point increase in consumers’ assessment of their present situation.

Presentation1

Despite the sharp decline in consumers’ overall expectations as recorded by the Conference Board, the share of consumers planning to buy a home in the next 6 months rose.  The rising trend in the share of consumers planning to purchase a home largely reflects an increase in the percent of respondents planning to purchase an already “lived-in” home. The share of consumers planning to buy a home in the next 6 months rose by 0.2 percentage points to 5.7% on a month-to-month seasonally adjusted basis. Since January 2011, the percentage of respondents with house purchasing plans has risen from 2.0% to 5.7%. Over this same period, the share of respondents planning to purchase a “lived-in” home rose by 2.2 percentage points while the share of respondents planning to purchase a new home rose by 0.7 percentage points. The portion of respondents that plan to purchase a home, but are uncertain about whether it will be a “lived-in” or a new home (series not shown) also rose by 0.7 percentage points.

Presentation2

The percent of consumers planning to purchase a new home is closely correlated with new home sales while the share of consumers planning to purchase a “lived-in” home is less correlated with single-family existing home sales. The continued increase in the percent of consumers planning on purchasing a new home as shown in Chart 3 may indicate that new home sales will continue to recover. In contrast, the rise in the share of consumers planning to purchase an existing home is not a strong predictor of existing home sales.

Presentation3

Presentation4


New Home Sales Burst Forward

July 24, 2013

US Departments of Commerce and Housing and Urban Development reported new homes sales up 8.3% in June over the May revised figure. New home sales were at 497,000 on an annual basis, the highest rate in five years. Sales were up in three of the four regions; the 12% drop in the Midwest was an adjustment to a much higher than trend rate in May but still higher than months prior to May.

 

The inventory of new homes for sale rose slightly but the months’ supply (the time it would take to sell the remaining inventory at current sales pace) dropped to 3.9. The months’ supply level ties January 2013 for the lowest level since March 2004. The number of completed new homes for sale remains at the lowest level (36,000) ever recorded in the 40 years of data. Builders have been struggling to resupply inventory as they battle increases in costs and reduction in supply of all their inputs: labor, land, building materials and capital.

 

As the industry gears back from 70 year lows, all of the infrastructure needed to build homes must be rebuilt. Building suppliers are rehiring staff and re-opening or building plants; workers are being enticed back into the industry or trained in schools or Job Corps programs; developers are buying land and seeking zoning and building permissions; and builders are seeking loans from banks and other sources of capital to invest in the inventory needed to supply the returning demand.

 

In partial reflection of the rise in costs, new home prices rose 7.4% from June 2012. Over the past 11 months, the average annual increase has been 13% as builders respond to the increased demand, as existing home inventories remain low and as only the more financially able households are approved for mortgages. NAHB expects new home sales to continue to improve although not at the same pace as the most recent month.

New Home Sales (000s)


House Prices Move Higher

June 25, 2013

Nationally, house prices continued to rise in April, contributing to the overall recovery in U.S. house prices. According to the most recent release by the Federal Housing Finance Agency, U.S. house prices rose by 0.7% on a month-over-month seasonally adjusted basis in April. This is the fifteenth consecutive monthly increase for the House Price Index – Purchase Only. Since January 2012, house prices have risen by 9.9%.

The April increase in house prices was geographically widespread, increasing in every division of the country. As Chart 1 illustrates, the largest gains took place in the Pacific and Mountain divisions, regions of the country containing states, like Nevada and California, that experienced the largest price declines.

Presentation1

Meanwhile, Standard and Poor’s reported that its house price index also rose in April. According to the most recent release, the S&P/Case-Shiller House Price Index – 20-City Composite grew by 12.1% on a year-over-year not seasonally adjusted basis. Following 20 consecutive months of year-over-year declines, house prices registered their eleventh consecutive year-over-year increase in April. House price growth in San Francisco, a city in the Pacific region, and in Las Vegas, a city in the Mountain region, eclipsed house price growth in Phoenix, a city in the Mountain region. However, as chart 2 illustrates, each of these cities in addition to Atlanta experienced year-over-year house price growth greater than 20.0%. April is the eighth consecutive month that Phoenix has experienced a 12-month price increase greater than 20.0%.

Presentation2

Rising house prices for existing homes, such as those counted in the FHFA and in the S&P/Case-Shiller House Price Indices, is a net positive for the housing recovery. Recovering prices will improve conditions for builders, lead to higher inventories of new construction, and motivate potential sellers of existing houses to come back into the market. Data released jointly by the US Census Bureau and the US Department of Housing and Urban Development showed that newly constructed single-family houses sold at a seasonally adjusted annual rate of 476,000 in May, 2.1% higher than level of new single-family houses sold in April. Going forward we expect house prices to continue to rise, by 9.5% overall in 2013 and by 4.5% in 2014.

For full histories of the 20 markets included in the Case-Shiller composite, click here cs.

For full histories of the FHFA US and 9 Census regions, click here fhfa.


New Home Sales on Course

April 23, 2013

HUD and Census reported new home sales up 1.5 percent in March over February at an annual rate of 417,000 per year. Except for the January outlier rate of 445,000, this is the highest rate of sales since the end of the home buyer tax credit in early 2010. The first quarter average is 424,000 annual sales, which is the highest since third quarter 2008. Regional activity was mixed with the Northeast and South up (21 and 19 percent respectively) and the Midwest and West down (12 and 21 percent respectively).

 
Inventories continue near historic lows at 153,000 homes and a mere 41,000 homes completed and ready to occupy. In a normal market, there are about 100,000 ready-to-occupy new homes for sale. At the current sales pace, the inventory represents 4.4 month’s supply.

 
The pace of new home sales is about half of a normal level as the industry and home buyers begin the long road back to equilibrium. Given the losses in the infrastructure of the industry, this modest recovery pace is both what is to be expected and what can be managed until more resources such as labor, lots and building materials return to home building.

New Home Inventory


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