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Changing Market: More VA-FHA Loans, Cash Sales

31% of U.S. Dec. sales were for cash, though Fla. percentages ran as high as 52% in West Palm Beach. VA and FHA loans also rose in most Fla. metro areas studied.

SEATTLE – Roughly one-third (31.2%) of U.S. home purchases were  cash sales in December, according to a report from Redfin. That’s up from 28.8% one year earlier but down from an eight-year high of 31.9% hit in November. Florida, however, largely saw a higher percentage of cash sales in the six metro areas studied.

The share of U.S. cash sales remains elevated above pre-pandemic levels because mortgage rates are high, averaging 6.36% in December. Buyers are motivated to use cash because the can avoid high interest on a loan.

On a pragmatic level, monthly mortgage payments have risen about 25% year-to-year due to mortgage-rate increases throughout most of 2022.

The typical monthly mortgage payment is up about 25% from a year ago, when rates were around 4%.

However, mortgage rates began to drop a bit during the last two months of 2022. As a result, the percentage of cash sales also declined in November and December.

All-cash purchases are common in two notable scenarios: When mortgage rates are high and when the housing market is competitive. The latter explains why the prevalence of all-cash purchases shot up in late 2020 and remained elevated throughout 2021.

FHA and VA loans

In December, FHA loans made up 16% of mortgaged home sales – the highest portion since the start of the pandemic. Nearly one in six (15.6%) mortgaged home sales nationwide used an FHA loan, up from 12.5% a year earlier – the highest share since May 2020.

VA loans have also become more common, with 7.1% of homebuyers who took out a mortgage in December using one. That’s up from 6.2% a year earlier and the highest share since July 2020.

FHA loans – and VA loans, to a smaller extent – became increasingly prevalent in the second half of 2022 as the overall housing market cooled considerably due to rising mortgage rates and buyers gaining more negotiating power. Plus the year-to-year figures are being compared to 2021 during the ultra-competitive pandemic housing market.

The share of mortgaged home sales using an FHA loan fell to a record low of 10.4% in April 2022, while VA loan usage bottomed out in March and April 2021 at 5.5%.

FHA-financed buyers are more likely to get their offers, which tend to include small down payments, accepted in a cool market where there is little to no competition from other buyers. In a hot market, sellers often choose cash buyers or those using conventional loans, believing those deals are more likely to close quickly and efficiently.

“Buyers are successfully using FHA loans more often now because sellers are eager to jump on any offer they get when their home sits on the market and gets just one or two showings a week,” says Redfin Senior Economist Sheharyar Bokhari. “That means buyers with less money in the bank are finally able to win homes.”

But it’s not all good news, adds Bokhari. FHA buyers “are getting accepted because the market is slow, and the market is slow because high rates and prices make it unaffordable for a lot of people.”

Still, conventional loans remain the most common type of mortgage: 77.3% of December’s mortgaged home sales used a conventional loan, down from 81.2% a year earlier, for the lowest level since June 2020.

Cash, VA and FHA loan changes in Florida

Dec. 2022 year-over-year cash sale percentages

  • Fort Lauderdale: 43.5%, up from 40.4%
  • Jacksonville: 45.3%, down from 47.8%
  • Miami: 45.0%, up from 39.7%
  • Orlando: 37.7%, down from 39.6%
  • Tampa: 39.1%, down from 41.1%
  • West Palm Beach: 52.0%, up from 51.4%
  • National: 31.2%, up from 28.8%

Dec. 2022 year-over-year FHA loan percentage changes

  • Fort Lauderdale: 18.2%, up from 13.9%
  • Jacksonville: 15.3%, up from 10.5%
  • Miami: 15.0%, up from 11.7%
  • Orlando: 16.9%, up from 11.9%
  • Tampa: 18.2%, up from 11.9%
  • West Palm Beach: 15.8%, up from 12.1%
  • National: 15.6%, up from 12.5%

Dec. 2022 year-over-year VA loan percentage changes

  • Fort Lauderdale: 4.4%, up from 3.2%
  • Jacksonville: 20.7%, up from 16.3%
  • Miami: 2.5%, up from 1.9%
  • Orlando: 6.7%, up from 5.6%
  • Tampa: 9.9%, up from 9.2%
  • West Palm Beach: 3.6%, up from 3.6%
  • National: 7.1%, up from 6.2%

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