Eye On Housing
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.
For the third quarter of 2013, the share of cash purchases fell slightly to 7.37% from a revised 7.87% in the second quarter. The high point for cash purchases occurred in the third quarter of 2011 when the market share was 7.89%, only slightly higher than the third quarter estimate. In contrast, for October, existing home sales cash purchases totaled 31% of the market. 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 third 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 8.4% of new home sales during the third 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 third quarter, the median new home price due to FHA financing was $200,200. This is relatively unchanged from the average over the last two years of about $201,000.
The median price for VA-backed loans was $249,300, higher than the two-year average of approximately $238,000. Conventional mortgage financing had a median of $277,700, higher than the two-year average of $269,000.
Finally, the median price for cash purchases of new home sales fell substantially in the third quarter to $262,900. The two-year average is about $254,000.
Additional annual data for 2012 financing sources can be found in a recent NAHB study using information from the Census Survey of Construction.
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