(Calculated Risk) According to the Census Bureau, 17% of new homes sold in Q3 2008 were financed with FHA loans. This is up from an average of 4% in the 2005 through 2007 period.
This huge percentage increase in FHA loans was partially driven by Downpayment Assistance Programs (DAPs). These programs allowed the seller to provide the buyer with the downpayment by funneling the money through a charity.
DAPs have been eliminated (finally!) as of Oct 1st.
Eliminating DAPs is a positive for the economy and housing. FHA loans using DAPs had significantly higher default rates than when the buyers actually made a down-payment, and DAPs encouraged appraisal fraud.
Although good for housing and the economy in the long term, eliminating DAPs might impact new home sales in the fourth quarter of 2008.
Click on graph for larger image in new window.
This graph shows new home sales by percent financing type. The percent of FHA loans increased dramatically in 2008, and this was probably driven by DAPs.
The second graph shows the same information but by the number of units sold.
Of the 118,000 homes sold in Q3 2008, 20,000 were bought using FHA financing.
This compares to 7,000 FHA financed homes in Q3 2007 out of 181,000 new homes sold.
The number and percent of FHA loans will probably decline in Q4 2008, and this will probably impact about 10% of potential home buyers.