FHA/VA Financing and Price Discounts

Paul Asabere and Forrest Huffman

Journal of Real Estate Research, 2008, vol. 30, issue 2, 191-206

Abstract: This study examines the effects of FHA and VA mortgage financing on home prices. Using a database of nearly 9,000 homes sales in the San Antonio, Texas area, hedonic analyses reveal that both types of government-backed financing are associated with reductions in selling prices. The results may imply a cost shifting behavior on the part of buyers and an implicit subsidy on the part of sellers. The regressions show that the price discounts for FHA underwriting are about 4% (3.81% to 4.14%) relative to conventional financing. VA discounts, as expected, are smaller, ranging from about 2% to 3.46%. Given the prior literature, the results are likely a result of the fact that FHA and VA homebuyers are able to shift some costs to sellers.

Date: 2008
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DOI: 10.1080/10835547.2008.12091215

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