Share of New Home Sales Financed through FHA Hits Eight-Year High


NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the U.S. Census Bureau reveals that FHA-backed sales made up 17.4% of new home sales in 2019, the largest share since it reached 20.6% in 2012. Mortgages backed by the FHA made up 18.4% (28,000) of total sales (152,000) in the fourth quarter of 2019, 2.9 percentage points higher than the previous quarter and 5.7 percentage points higher than Q4 2018.

Conventional loans accounted for 71.1% of new home sales in the fourth quarter of 2019, a 1.5 percentage point increase from Q3 2019 (revised). The last time the percentage of new home sales financed with conventional mortgages was greater than 70.0% was Q4 2018 (74.6%).

Cash purchases (4.6%) and VA-backed sales (5.9%) lost 2.5ppt and 1.8ppt of market share, respectively, in Q4 2019. At 4.6%, cash sales made up their smallest share since Q1 2017 (4.5%). Similarly, VA loans accounted for their smallest share since Q3 2018 (4.8%).

Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. According to estimates from the National Association of Realtors, roughly 20% of existing home transactions were all-cash sales in December 2019, down from 22% in December 2018.

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 22.5% lower than its 91.7% high reached in 2006 and 4.9% higher than its average since the end of the Great Recession.

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 second quarter, the national median sales price of a new home was $324,500. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $345,700, $236,100, $332,200, and $287,800, respectively.

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