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Wednesday, January 26, 2011

Home Sales: Distressing Gap

by Calculated Risk on 1/26/2011 12:10:00 PM

Here is an update to a graph I've been posting for several years (most of the text is a repeat).

This graph shows existing home sales (left axis) and new home sales (right axis) through December. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Distressing Gap Click on graph for larger image in new window.

Initially the gap was caused by the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.

The two spikes in existing home sales were due primarily to the homebuyer tax credits (the initial credit in 2009, followed by the 2nd credit in 2010). There were also two smaller bumps for new home sales related to the tax credits.

Note: it is important to note that existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

In a few years - when the excess housing inventory is absorbed and the number of distressed sales has declined significantly - I expect existing home-to-new home sales to return to something close to this historical relationship.

New and Existing December home sales posts:
New Home Sales increase in December
December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply
Existing Home Inventory increases 8.4% Year-over-Year in December
• Graph galleries for New Home and Existing Home sales