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Sources of New Home Sales Financing

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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.

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