FHA loans are becoming more popular as the market recovers
In the midst of the housing crisis, sometimes seemed like the FHA was the only way to finance the purchase of a home, especially for those with less than stellar credit or who are unable to make a large down payment. The government sponsored insurance program has always been, quite intentionally, a countercyclical lender, and when money flowed freely during the housing boom, FHA loans dwindled to next to nothing. Subprime lenders have regained their market share, offering lower underwriting standards and catchy interest rates. In 2006, FHA loans only had a 4.5% share of the purchase finance market.
Then the crash has struck, the subprime lenders are gone, and the FHA’s market share has skyrocketed. The agency provided 34.5% of the purchasing market in 2010. The share is only half, 16.9% in the third quarter of 2019, but its share of a subset of purchase mortgages appears to be increasing again.
The National Association of Home Builders (NAHB) examined Census Bureau data on financing for new home purchases and found that the role of the FHA in this market is growing. The share of new homes purchased with FHA financing in the the fourth quarter of 2017 hit a recent low of around 11% at a time when its share of all purchase loans was 17.71%. Since then the new portion of the house has been fairly steady growth and reached 18.4 percent in the fourth quarter of last year. This is a 2.9% increase in sales in the third quarter, a gain of 5.7 points year-on-year and the largest share since 2012. Out of a total of 152,000 new purchases of 28,000 homes received FHA funding.
The share of new homes enjoyed by other credit products did not experience this level of growth, especially in relation to their overall market shares. According to Ellie Mae, the FHA share of all loans in the fourth quarter was around 16.5%. Conventional loans accounted for 71.1% of new home sales in the fourth quarter of 2019, an increase of 1.5 percentage points compared to the third quarter of 2019, while their share of all creations seems definitively stuck in the lower range. of the 70%.
At the same time, spot purchases of new homes and those financed by VA have contracted. The VA share fell 1.8 percentage points to 5.9%, its lowest share since the first quarter of 2018. first quarter of 2017.
NAHB says different sources of funding also serve distinct market segments. In the second quarter of last year, the median selling price of a new home was $ 324,500. Broken down by type of financing, the median prices of new homes financed by conventional loans, FHA loans, VA loans, and cash were $ 345,700, $ 236,100, $ 332,200 and $ 287,800, respectively.