David Charron, president and chief executive of Rockville-based multiple-listing service MRIS, writes an occasional column about the Washington-area real estate market.                                                          

This time seven years ago, the stock market was crashing, and real estate as we knew it changed. Today, as the Washington metro market continues to grow stronger, funding sources are also changing.

We’ve all heard the saying that cash is king. But in the D.C. metro market this year, Federal Housing Administration (FHA) loans are taking a run at the throne.

An FHA loan, provided only by FHA-approved lenders, is a loan that is insured by the Federal Housing Administration, reducing risk for loan providers should the borrower default on mortgage payments. With maximum loan values in place, these loans are popular with first-time home buyers and often do not apply to higher-end housing.

A comparison of residential real estate transactions across 153 Zip codes in the Washington region indicated that total sales were up 10.6 percent between January and September of 2015 compared with the same timeframe last year. We took a closer look at transactions funded by cash vs. FHA loans and discovered that cash sales made up 15 percent of total sales, a decrease of 2 percent from last year. FHA sales topped cash sales at 17 percent. This year alone, there have been 47 percent more FHA sales compared with January through September of last year.

Where cash is still king

Although the percentage of cash sales decreased this year, there are a few areas where cash continues to dominate. In the West End/Foggy Bottom neighborhood of Northwest Washington, where the median sales price was $575,000, cash made up 47 percent of total sales. Total cash sales from January through September increased by 22 percent year over year. Although interest rates remain low, and the FHA limit for a single-family dwelling in the area is higher at $625,000, buyers in this neighborhood continue to favor cash. In Washington’s 20006 Zip code, the median sales price is significantly lower at $215,000. But again, buyers favored cash for 50 percent of sales. Neither neighborhood closed a single FHA transaction.

Other Zip codes with a high number of cash sales include:

  • Bladensburg, Md. (20710) – 41 percent of total sales
  • Dickerson, Md. (20842) – 36 percent of total sales
  • Silver Spring, Md. (20906) – 36 percent of total sales
  • Hyattsville, Md. (20783) – 35 percent of total sales

(Virginia jurisdictions were included in these analyses but none ranked in the top percentage of cash sales.)

In many of the neighborhoods, the percentage of cash sales has fallen compared with last year. Zip code 20783 in Hyattsville, Md., where the median sales price is $241,000, cash sales make up 35 percent of total sales, down from 40 percent last year. Interestingly, while this area nears the top of the chart for cash sales, FHA sales are actually higher at 44 percent of total sales.

Where FHA takes control

While FHA sales increased across 76 percent of Zip codes evaluated in the Washington area, Prince George’s County has seen the most concentrated increase in FHA funding. Nine out of the top 10 Zip codes with the highest percentage of FHA funding are in Prince George’s County. This shift is likely due to the increasing number of first-time home buyers, affordability of housing in the county and recent actions by county officials to keep property taxes low.

The top Zip codes where FHA sales dominate are:

  • Lanham, Md. (20706) – 59 percent of total sales
  • Hyattsville, Md. (20784) – 52 percent of total sales
  • Cheltenham, Md. (20623) – 50 percent of total sales
  • Clinton, Md. (20735) – 50 percent of total sales

While the majority of the top 10 Zip codes with the highest percentage of FHA sales are concentrated in Prince George’s County, the federally backed loan program is increasing in popularity across the entire region.

However, while FHA loans have become a more popular financing source this year, recent FHA lending changes may impact the rise we have seen with these loans. The lending changes, which went into effect last month, no longer allow loan officers to exclude student loans during the mortgage approval process and tighten restrictions on work history. Since FHA loans are popular among first-time home buyers — often those who still carry student debt — these changes could impact future funding for residential real estate transactions.

As real estate in the D.C. metro region retains its strength, there are many factors at play impacting the number of homes selling and funding sources for residential real estate transactions in various neighborhoods. While FHA loans appear to be on the rise, cash and other funding sources remain solid funding options.

Catch up with some of David Charron’s previous columns: