Lynn Fairfield

Broker

Sources of New Home Sales Financing



While the sources of finance for new home sales have changed noticeably since
the start of the Great Recession, cash sales remain more common for existing
homes compared to new construction.

According to data from the Census Bureau’s Quarterly Sales
by Price and Financing
, the onset of the housing crisis in 2007 led to a
decline in the share of new home sales due to conventional mortgage financing
and increases in the shares due to mortgages backed by the Federal Housing
Administration (FHA) and the Department of Veteran’s Affairs (VA), as well as
cash purchases.

For the second quarter of 2013, the share of cash
purchases rose slightly to 7.4 percent. The high point for cash purchases
occurred in the third quarter of 2011 when the market share was a somewhat
larger 7.9 percent. In contrast, for August existing home sales, cash purchases
totaled 32 percent, compared to 27 percent in August 2012. The cash share for
new homes is smaller because cash buyers in the existing home market are looking
for bargains for rental purposes, while for-sale new construction is dominated
by owner-occupiers.

New home sales due to FHA-backed loans stood at 17
percent of the market for the second quarter. This is down from 27.6 percent in
the first quarter of 2010 but above the 10 percent 2002-2003 average. The market
share of FHA-backed loans was higher during the 2009-2010 period due to the
federal homebuyer tax credit.

VA-backed loans were responsible for 7.4
percent of new home sales during the second quarter of 2013.

These
sources of financing serve distinct market segments, which is revealed in part
by the median new home price allocable to each. For the second quarter, the
median new home price due to FHA financing was $197,900. This is relatively
unchanged from the average over the last two years of $199,700.

The
median price for VA-backed loans was $273,300, higher than the two-year average
of $234,100. Conventional mortgage financing had a median of $285,900, higher
than the two-year average of $263,700.

Finally, the median price for cash
purchases of new home sales rose substantially in the second quarter to
$318,000. The two-year average is about $255,000. The rise in the price of the
typical cash purchase reflects market mix issues, similar to force that have
pushed up the size of a typical newly built single-family home: higher wealth
buyers are in the market in greater concentration relative to other buyers,
particularly younger, first-time buyers.

View this original post on the
NAHB blog, Eye
On Housing
.

 

Reprinted with
permission from RISMedia. ©2013. All rights reserved.