A large contingent of new homes started in 2015 were purchased using non-conventional
financing according to a new analysis by the National Association of Home
Builders (NAHB). The association’s
Assistant Vice President for Housing Policy Research, Natalia
Siniavskaia writes that more than a third (34.4 percent) of newly constructed
homes started last year did not use conventional financing. This includes purchases using all cash, FHA,
VA, and Rural Housing Service (USDA) loans.
Siniavskaia used the U.S Census Bureau Survey of
Construction (SOC) data and found that the use of non-conventional financing
varied widely across census divisions, from a low of 16 percent of new home
purchases in the East South Central division (Alabama, Mississippi, Tennessee,
and Kentucky) to 40 percent in both the West South Central (Texas, Oklahoma,
Louisiana and Arkansas) division and the South Atlantic division which includes
coastal states from Delaware south and West Virginia.
There was also substantial variation in the types of
non-conventional financing used. For
example, in the six New England states 39 percent of new homes were purchased
using non-conventional financing, but FHA, USDA, and VA loans played only a
tiny role – an aggregate of 6 percent while 33 percent of all new homes were
financed with cash. The author
speculates that this ratio as well as the high level of cash purchases in the
Middle Atlantic (New York, New Jersey and Pennsylvania) and East North Central
(Michigan, Illinois, Wisconsin, Indiana, and Ohio) divisions were due to their
having the highest levels of custom building in the nation. Siniavskaia says custom homes are more
likely to be financed with cash, especially if built by the owner acting as the
general contractor. In 2015, more than 36% of custom homes built by the owner
were financed with cash, while less than 7 percent of spec homes were purchased
In contrast, homebuyers in the South Atlantic and West South Central
division relied more heavily on FHA– and VA-backed loans that together
accounted for more than 26% and 21% of the market, respectively.
FHA got a larger share of new home financing in 2015, especially in the
Pacific (California, Oregon Washington, Hawaii, and Alaska) and South Atlantic
divisions where FHA loans accounted for 19% and 18%, respectively. NAHB
attributed this to the reduction in FHA mortgage insurance premiums implemented
at the beginning of the year. This helped FHA loans regain their status as the
most prevalent form of non-conventional financing of new home purchases. Those loans had fallen behind cash financing
a year earlier after their loan limits were reduced.
The share of VA-backed loans remained relatively stable in 2015, accounting
for just over 6% of the market. However, their share was almost twice as high,
approaching 12%, in the Mountain division (Montano, Idaho, Utah, Colorado,
Nevada, Arizona and New Mexico) the only region in the nation where the share
of VA-backed loans exceeded that of cash purchases and other types of financing
There was a sharp decline in the share of cash purchases nationwide in 2015,
especially in the Mountain division where cash purchase declined by 50 percent.
Nationally only 10 percent of new homes were purchased with cash.
Other types of non-conventional financing methods – such as the Rural
Housing Service, Habitat for Humanity, loans from individuals, state or local
government mortgage-backed bonds and other sources claimed a 4.5 percent national
share. The highest share, 4 percent, of this “other” financing was in the East
South Central division, where more than 30% of new home starts were in rural
speculated that this “other” financing in the region, which was accounted for
one-quarter of its non-conventional share, was most likely through the
Rural Housing Service.