Dive Brief:
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The share of new homes purchased through conventional mortgages rose to nearly three-quarters (72%) in Q1 2017, the second-highest percentage since Q4 2014, according to the National Association of Home Builders' analysis of U.S. Census Bureau data. FHA loans, meanwhile, rose to 14.7% from 14.4% during that period.
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The share of new home sales financed by a conventional mortgage has hovered between 68% and 75% for the past four years, up from 62.2% in 2009.
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Of new homes sold in Q1 2017, 4.7% were bought in cash, down from the last peak at 9.5% in Q4 2014. Cash sales accounted for a small portion of new-home sales but made up 27% of existing-home sales in February 2017 — the highest share of all-cash transactions since November 2015.
Dive Insight:
Today’s strong demand for housing and limited affordable inventory is triggering home-price growth that threatens the homeownership potential of many would-be buyers. As a result, more buyers are taking on mortgage loans that allow them to put a smaller share of that cost down.
Millennials, in particular, are looking to loans backed by the Federal Housing Administration, which offer smaller down payments and can work with lower credit scores. According to Ellie Mae, FHA loans made up 35% of the total home loan market in January 2017, with millennials taking 84% of new-home mortgage loans closed for the month.
Of all living generations, millennials accounted for the largest share of homebuyers in 2016, according to Zillow, and it is only expected to grow as members of that generation set out on their own. Factors poised to slow that activity include high levels of collective student loan debt, still-slow employment and wage growth and rising mortgage interest rates.
However, Zillow notes that higher rates aren’t likely to impact homebuying activity in a significant way until they reach 5.5%. The average 30-year fixed rate mortgage was 3.99% this week, according to Bankrate.