FHA Mortgages Finance Growing Share of New Home Sales


NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the U.S. Census Bureau reveals that FHA loans financed 12.9% of new home sales during the third quarter of 2018, 2.3 percentage points above the prior quarter and the largest share since Q3 2017. Despite the increase, the share of sales financed with FHA-backed mortgages remains 4.3 percentage points below its most recent peak.

Conventional loans accounted for 74.1% of new home sales in the third quarter of 2018, a 0.8-percentage point decrease from Q2 2018. In early 2008, conventional loans financed over three-quarters of new home sales 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% in each of the last nine quarters.

Cash purchases accounted for 10,000 new home purchases—7.2% of total new home sales—as the share of new home sales backed by VA products fell 0.9 percentage point to 5.8% of the total. Market share has fallen 55% since reaching 12.8% in 2012.

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 53.9% 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 21% of existing home transactions were all-cash sales in September 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 third quarter, the national median sales price of a new home was $325,200. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $361,800, $253,000, $315,700, and $374,900.

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