Conventional Loan Market Share Hits 10-Year High


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 76.9% of new home sales in the fourth quarter of 2018, a 2.4-percentage point increase from Q3 2018. Although mortgage rates have moderated in 2019, the increase in conventional mortgage market share in late-2018 was contemporaneous with rising rates.

This marks the first time since 2008 that conventional loans financed over three-quarters of new home sales before steadily falling and bottoming out at 57.3% in the fourth quarter of 2010. The share has steadily risen since then and has been above 71% in each of the last ten quarters.

The increase of conventional loan market share ate into that of FHA-backed mortgages which fell 2.3 percentage points in the fourth quarter of 2018. At 11.5%, the share of new home sales financed with FHA-backed mortgages is 5.7 percentage points below its most recent peak and less than half its cycle high of 27.6%.

Cash purchases accounted for 7,000 new home purchases—5.4% of total new home sales—as the share of new home sales backed by VA products increased 2.1 percentage points to 6.9% of the total.

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 conventional loan share is 61.1% lower than its 91.7% share reached in 2006 and only 5.2% lower than its 2002 average.

Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. Roughly 23% 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 fourth quarter, the national median sales price of a new home was $317,400. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $337,900, $236,100, $282,900, and $301,500, respectively.

The median price of a new home increased 0.5% in 2018 after 4.6% and 5.0% increases in 2016 and 2017, respectively. The relatively modest increase was due to a 4.6% decline in the price of all-cash transactions and a 1.0% decrease in the price of VA-backed home sales.

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