Conventional Mortgages Finance Most New Home Sales Since 2008


NAHB analysis of the most recent Census estimates concerning sources of financing for new home sales reveals that the share of mortgages financed through conventional products in the third quarter of 2016 rose to 74.1%–the highest level seen since 2008.  In contrast, cash sales accounted for the smallest portion they have since the second quarter of 2010.  The portions financed with FHA and VA loans also declined while the number of new homes sold fell 6%.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing and NAHB calculations, new home sales due to FHA-backed loans fell to a quarterly count of 21,000 as market share declined from 17% to 14% for the third quarter of 2016. The FHA share rose sharply at the start of 2015 due to a change in FHA mortgage rules, jumping from 10% to 17% between the last quarter of 2014 and the second of 2015.

It is worth adopting some caution associated with the Census market share estimates. In particular, the statistical error associated with the FHA, cash, and VA sales estimates from this data set are relatively high. This reduces the reliability of measures of short-term market changes.

Mindful of this limitation, over the long run the current FHA-share is one-half the 28% share determined for the first quarter of 2010 but still higher than the 10% 2002-2003 average.

Cash-based transactions for the third quarter made up 5% of sales and have hovered between 5%-6% over the last year and a half. However, in contrast to new home sales, cash purchases constitute a considerably larger share of the existing home market—21% in October—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: 15.5% in September

VA-backed loans were responsible for 7.4% of new home sales during the third quarter of 2016.

Conventional financing has expanded as the housing recovery has grown. The market share of new home sales with conventional financing was 58% in 2009 and came in at approximately 74% for the third quarter of 2016.  This share has remained between 69% and 75% over the last 14 quarters.

Different sources of financing serve distinct market segments, which is revealed in part by the median new home price associated with each. For the third quarter, the national median sales price of a new home was $301,300  Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $332,100, $215,700, $271,000, and $296,200, respectively.


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