Fannie Mae and Freddie Mac are running away with new home financing. The National Association of Home Builders (NAHB) estimates that conventional loans were behind 76.3 percent of all new home sales in the second quarter of the year. David Logan, writing in the NAHB Eye on Housing Blog, says this is the largest share those loans have held since the beginning of the Great Recession in 2008. It was 5.1 percentage points higher than the conventional loan share in Q1 and 9.5 points more than in the second quarter of 2020.
The growth in conventional lending was largely at the expensive of FHA. Those loans financed 12.1 percent of new home sales in Q2, down 6.7 points from the previous quarter and 8.3 points year-over-year. Logan said that the four-quarter moving average in the FHA share had been moving higher since Q3 2018, however, the second quarter data depressed that average by 1.1 point.
The share of VA loans dipped 1 percentage point, its second decline in as many quarters, to 5.1 percent of new home purchases. This puts the share of those loans below cash sales at 7.1 percent, the highest cash share since Q3 2019. The reported number of cash sales climbed 4,000, or 40.0%, in the second quarter and increased 6,000 on a year-over-year basis."
Logan says the continued low interest rates, the 40 percent returns from the stock market over the four quarters that ended in Q2 2021, and tailwinds from the fiscal stimulus all played a role in growing the shares of conventional loan and cash purchases relative to sales financed through the FHA and VA. "Higher stock returns and the resulting increased wealth aids borrowers in the underwriting process as well as increasing the downpayment a household can afford (should they cash out some of their portfolio)," he said.
Cash sales play a larger role in existing home sales. The National Association of Realtors estimates that 23 percent of those transactions in July were all-cash, compared to 16 percent a year earlier. This was probably driven by continued tight inventory and resulting multiple-bidder sales.
Logan says financing differs by market segment. This is demonstrated by the median home price associated with each. In the second quarter, the national median sales price of a new home was $374,900, but the median price of new homes financed by conventional loans was $396,200 while the FHA median was $286,000 and the median for VA and all-cash purchases was $406,400 and $382,800, respectively.