Share of Conventional Mortgages Continues to Rise


NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the U.S. Census Bureau reveals that conventional loans accounted for 74.2% of new home sales in the second quarter of 2018, a 0.4-percentage-point increase over Q1 2018 and the highest share in a decade. Conventional loans financed over three-quarters of new home sales in the second quarter of 2008 before steadily falling and bottoming out at 57.3% in the third quarter of 2010. The share has steadily risen since then and has been above 71% each quarter over the last two years.

FHA loans financed 11.0% of new home sales during the second quarter of 2018, down from 11.9% in the prior quarter and from 13.5% in Q3 2017. Since its most recent peak in Q1 2016, the share of sales financed with FHA-backed mortgages has fallen 6.2 percentage points. Cash purchases accounted for 13,000 new home purchases, 5.2% of total new home sales. The aggregate 1.6% decline in the share of sales financed by FHA loans and cash was mostly due to the rise in conventional mortgage market share.

Census data and NAHB calculations show that new home sales backed by VA products fell 1.8 percentage points to 7.1% of the total. Market share has fallen 40% since reaching 12.7% in the wake of the Great Recession.

VA loans backed just 2.4% of new home purchases during the housing boom, on average. The chart below illustrates how different types of financing are used in different economic environments.

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 FHA share is 60.7% less than its 28% share reached in 2010 and almost back to the 10% average of 2002-2003.

Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. Roughly 22% of existing home transactions were all-cash sales in June 2018, according to estimates from the National Association of Realtors.

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 $328,000. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $359,600, $236,300, $292,300, and $298,000, respectively.

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