Alex Nabaum

Behind the historic lows this year in new-home sales is evidence indicating a shift in how home buyers are financing their purchases. It’s clear that traditional financing is particularly challenging for the new-home market. According to Hanley Wood Market Intelligence data on new-home sales, representing over 90 percent of all new construction, cash-only purchases are up 77 percent for the 12 months ending June 30, 2011, over the all cash purchases that occurred in 2007.

As cash has risen in importance, the number of new-home sales financed by the too-big-to-fail national banks has fallen at a greater rate than the overall market. For the 12 months ending June 30, 2011, traditional banks financed only slightly more than half of new-home sales. What accounted for the rest? Cash purchases and the captive mortgage companies of the top 20 builders.

The truth is, we do need banks. Without traditional financing, new-home construction cannot begin to recover. The data indicate that difficult credit conditions are the biggest stumbling block to any hope of recovery.

Captive Mortgage Companies Rise in Importance

With the exception of Wells Fargo, national megabanks have dropped their support of new-home buyers. Meanwhile, big builders with captive mortgage companies have proliferated. Having a captive mortgage company may provide a competitive advantage over builders without one, especially in the entry-level segment where credit has tightened the most and will likely get even tougher in the months ahead.