New Home Sales: Growing Conventional Financing Share


NAHB analysis of the most recent Census numbers regarding the sources of financing for new single-family home sales suggests small changes from the prior quarter, although the long-run trends point to a growing market share for conventional financing sources.

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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.

Fourth quarter data from the Census Bureau’s Quarterly Sales by Price and Financing indicate that count of cash-based new single-family home sales stood at 9,000 for the quarter or just under 9% of total sales. During the 2002-2003 period, cash sales made up only 4% of purchases. In contrast, cash purchases constitute a considerably larger share of the existing home market – 26% in December per National Association of Realtors estimates.

It is worth noting that another measure of cash sales for total new construction from CoreLogic shows a higher level of cash sales than the Census: 16.8% in October 2014.

New home sales due to FHA-backed loans were less than 9% of the market during the fourth quarter according to the Census numbers. This is down from 28% in the first quarter of 2010 and approximates 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.

VA-backed loans were responsible for about 8% of new home sales during the final quarter of 2014.

Conventional financing has expanded as the housing recovery has grown. The market share of new home sales for conventional financing was 62% in 2011 and the preliminary estimates for 2014 show it has grown to 72%. By a count of new home sales, this represents an increase from 109,000 conventional sales in 2011 to 313,000 in 2014.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price associated with each. For the fourth quarter, the median new home price due to FHA financing was $195,700. The median price for VA-backed loans rose to $261,800.

Conventional mortgage financing had a median price of $295,500.

Finally, the median price for cash purchases for the fourth quarter was $304,500.


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