Fewer using nonconventional loans to fund a new-home purchase

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The reliance on nonconventional financing to fund new single-family housing is dropping, with the share accounting for less than a third of the market for the second year in a row, according to the National Association of Home Builders.

The percentage of nonconventional financing for new-home purchases fell to 30.8% in 2017, from 31.5% in 2016. For reference, 2016 was the first time this share represented less than a third of the market since 2008.

The drop in nonconventional funding for new housing could suggest that an improving economy means many homebuyers are seeking more traditional means of financing, but it could also represent the decline in new-home inventory on the market. Homebuilders, like house shoppers, continue to face affordability hurdles as high costs to build make it difficult to add supply to the market.

Across the country, specific regions were more dependent on nonconventional funding for their new-home purchases than others.

In the South Atlantic and West South Central divisions, the share accounted for 35.4% of financing for new single-family home purchases, but in the East North Central, it made up only 15.5%, which is nearly half the national average and the lowest share for any region across the nation.

Of all types of nonconventional financing, loans backed by the Federal Housing Administration remained the most dominant form for new-home purchases, at 12.2%, followed by cash purchases, which accounted for 9.6% of market share.

Cash financing was the most prevalent form of nonconventional funding for new housing in New England, where more than a quarter of new single-family homes were financed with cash in 2017.

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Purchase Homebuilders Housing market Housing inventory Real estate NAHB FHA